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FOREX: Euro May Lead Risky Assets Lower as Traders Eye Portugal Debt Sale

FOREX: Euro May Lead Risky Assets Lower as Traders Eye Portugal Debt Sale

2011-03-09 07:59:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • Yen Slumps, Canadian Dollar Outperforms as Risk Appetite Recovers in Asia
  • Japanese Machine Orders Top Forecasts, Stoking Hopes of Exports Rebound
  • Australian Home Loans Plunge Most in a Year, Reinforce Flat RBA Outlook

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3837

1.3963

GBPUSD

1.6113

1.6196

The Euro was little changed in overnight trade, trading sideways in a tight range near 1.39 to the US Dollar. Trading in the British Pound was likewise muted, with sterling oscillating in a narrow band above 1.6140. We remain short NZDUSD.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

New Zealand Net Migration s.a. (JAN)

450

-

730 (R-)

23:30

AUD

Westpac Consumer Confidence (MoM) (MAR)

-2.4%

-

1.9%

23:30

AUD

Westpac Consumer Confidence Index (MAR)

104.1

-

106.6

23:50

JPY

Machine Orders (MoM) (JAN)

4.2%

3.0%

1.7%

23:50

JPY

Machine Orders (YoY) (JAN)

5.9%

5.1%

-1.6%

0:01

GBP

BRC Shop Price Index (YoY) (FEB)

2.7%

-

2.5%

0:30

AUD

Home Loans (MoM) (JAN)

-4.5%

-1.0%

2.1%

0:30

AUD

Investment Lending (MoM) (JAN)

-6.8%

-

3.4% (R+)

0:30

AUD

Value of Loans (MoM) (JAN)

-4.6%

-

1.4% (R-)

The Japanese Yen slumped in overnight trade, down as much as 0.3 percent against its major counterparts as a rebound in risk appetite spurred a recovery in carry trades funded cheaply in the perennially low-yielding currency. Most Asian bourses advanced after crude oil prices fell pulled back while Japanese Machine Orders topped expectations, spurring hopes that firming foreign demand will drive a recovery in exports in the months ahead after overseas sales growth slumped to start the year. Orders rose 4.2 percent in January, the most in five months. The WTI crude oil contract closed down 0.4 percent in New York following news that OPEC was mulling convening a “special meeting” to address supply shortages in the wake of the crisis in Libya.

The Canadian Dollar capitalized on firming sentiment, with the risk-linked currency adding 0.14 percent against the majors. The Australian and New Zealand Dollars underperformed, with the former on the defensive following a disappointing set of home lending figures while the latter looked ahead to tomorrow’s widely-expected RBNZ interest rate cut. Australian Home Loans to owner-occupiers unexpectedly dropped 4.5 percent in January, yielding the steepest decline in a year, while Investment Lending plunged 6.8 percent. The outcomes reinforced a neutral outlook on RBA monetary policy for the remainder of the year.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:15

CHF

Consumer Price Index (MoM) (FEB)

0.3%

-0.4%

Medium

8:15

CHF

Consumer Price Index (YoY) (FEB)

0.4%

0.3%

Medium

8:15

CHF

CPI - EU Harmonised (MoM) (FEB)

-

0.0%

Low

8:15

CHF

CPI - EU Harmonised (YoY) (FEB)

-

0.2%

Low

9:30

GBP

Visible Trade Balance (£) (JAN)

-8500

-9247

Medium

9:30

GBP

Trade Balance Non EU (£) (JAN)

-5150

-5817

Low

9:30

GBP

Total Trade Balance (£) (JAN)

-4000

-4831

Low

12:00

EUR

German Industrial Production (YoY) (JAN)

11.1%

10.0%

Medium

12:00

EUR

German Industrial Production (MoM) (JAN)

1.7%

-1.5%

Medium

Sentiment looks conflicted ahead of the opening in Europe, with stock index futures sending mixed signals after shares rose on Wall Street and in Asia on the back of a decline in oil. Crude continued to tick lower overnight, down as much as 0.7 percent, but risk appetite is hamstrung as Portugal prepares to roll over a tranche of debt amid a resurgence of Euro Zone sovereign debt concerns. Greece and Spain will need to do the same with a combined 30.3 billion in maturing debt in the next thirty days.

Refinancing expiring issues will carry substantially higher borrowing costs, stoking concerns that debt-ridden EU member states will be unable to meet their obligations. Such fears were crystallized when Moody’s unexpectedly downgraded Greece’s credit rating earlier this week, and come amid lingering uncertainty about the viability of the EFSF – Europe’s bailout fund – ahead of a March 25 summit of EU officials that has been promised to produce a “grand bargain” on dealing with sovereign stress within the regional bloc.

On the data front, a slight uptick in Switzerland’s Consumer Price Index is unlikely elicit much of a reaction considering its limited implications for monetary policy, with the SNB comfortably on the sidelines as the buoyant currency keeps inflation in check. Meanwhile, German Industrial Production is expected to tick higher in January, although signs of strength in the Euro Zone core are unlikely to prove supportive for the exchange rate as debt fears take center stage. Indeed, the Euro dropped the most in over a week yesterday despite firm German factory orders figures.

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