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FOREX: Euro Threatened on Portugal Crisis Fears, BoE Minutes on Tap

FOREX: Euro Threatened on Portugal Crisis Fears, BoE Minutes on Tap

2011-03-23 07:31:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • Dollar, Yen Outperform on Safety Demand as Asian Stocks Retreat
  • NZ Current Account Deficit Hits 2-Year High in the Fourth Quarter
  • British Pound Consolidates Below 1.64 Ahead of BoE Minutes Release

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4137

1.4232

GBPUSD

1.6307

1.6415

The Euro declined in overnight trade, down as much as 0.3 against the US Dollar as stocks declined in Asian trade, boosting the safety-linked greenback. The British Pound was in consolidation mode, oscillating sideways in a choppy range around 1.6370 to US unit as traders braced for the upcoming Bank of England minutes release (see below). We remain short NZDUSD.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Current Account Balance (NZ$) (4Q)

-3.524B

-2.2B

-0.029B (R+)

21:45

NZD

Current Account Deficit / GDP Ratio (4Q)

-2.3%

-2.5%

-2.2% (R+)

The safety-linked US Dollar and Japanese Yen narrowly outperformed in generally quiet overnight trade as stocks declined for the first in four days across Asian bourses. The MSCI Asia Pacific regional benchmark equity index fell 0.4 percent amid renewed concerns about Japan’s earthquake-battered Fukushima Daiichi nuclear power plant. A Tokyo city official advised that levels of iodine unsafe for infants were detected in the capital city’s tap water while engineers struggled to connect power to one of the plant’s four damaged reactors as another series of quakes stuck the area. Restoring power to the reactors is key to preventing radiation leaks.

On the data front, New Zealand’s Current Account deficit widened to NZ$3.5 billion in the fourth quarter, revealing the largest shortfall in two years. The report showed external trade shaved off a net 2.3 percent from overall economic growth in the three months through December. The figures come ahead of tomorrow’s much-anticipated fourth-quarter GDP report, with traders on edge despite expectations of an improvement in headline growth after the country’s own Finance Minister said that a second consecutive contraction was not out of the question, an outcome that would put New Zealand into a technical recession.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:30

GBP

Bank of England Minutes

-

-

High

9:30

GBP

BBA Loans for House Purchase (FEB)

29350

28932

Low

10:00

EUR

Euro-Zone Industrial New Orders (YoY) (JAN)

21.4%

19.3%

Low

10:00

EUR

Euro-Zone Industrial New Orders s.a. (MoM) (JAN)

1.0%

2.7%

Low

12:30

GBP

Chancellor of Exchq. Osborne Announces Budget

-

-

Medium

15:00

EUR

Euro-Zone Consumer Confidence (MAR A)

-11

-10

Medium

Stock index futuresare trading sharply aggressively lower ahead of the opening bell in Europe, sending the safety-linked US Dollar, Swiss Franc and Japanese Yen broadly higher amid fears that the minority government in Portugal will be unsuccessful in passing another round of austerity measures through parliament. The main opposition party – the Social Democrats – indicated they will oppose the move, while Prime Minister José Sócrates vowed to resign if the measures do not go through.

This threatens to unleash a political crisis in one of the debt-laden Euro Zone periphery countries just days before EU leaders meet to iron out a “grand bargain” on containing sovereign risk within the currency bloc.The situation is made all the more complicated considering a large tranche of Portuguese debt is due to mature and be rolled over in just three weeks, hinting the viability of whatever newly-minted bailout mechanism is agreed upon this weekend will be tested in very short order.

The release of minutes from this month’s Bank of England monetary policy meeting headlines the economic calendar, with traders focused on policymakers’ voting pattern to see if the hawks were able to lure another member of the rate-setting MPC to their side of the argument, putting them just one vote shy of the majority needed for an increase.

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To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

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