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FOREX: Euro Gains at Risk as Ireland Reveals Stress Test Results

FOREX: Euro Gains at Risk as Ireland Reveals Stress Test Results

2011-03-31 07:10:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4072

1.4242

GBPUSD

1.6014

1.6234

The Euro and the British Pound pushed higher against the US Dollar, adding as much as 0.4 and 0.5 percent respectively. We are looking to enter short EURUSD in the days ahead.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

GfK Consumer Confidence Survey (MAR)

-28

-30

-28

23:01

GBP

Hometrack Housing Survey (MoM) (MAR)

-0.1%

-

-0.2%

23:01

GBP

Hometrack Housing Survey (YoY) (MAR)

-3.2%

-

-2.7%

23:15

JPY

Nomura/JMMA Manufacturing PMI (MAR)

46.4

-

52.9

23:30

AUD

RP Data-Rismark House Px (MoM) NSA (FEB)

0.7%

-

-0.7% (R+)

23:30

AUD

RP Data-Rismark House Px (MoM) SA (FEB)

0.0%

-

-1.5% (R+)

0:30

AUD

Retail Sales (MoM) (FEB)

0.5%

0.4%

0.4%

0:30

AUD

Building Approvals (MoM) (FEB)

-7.4%

4.0%

-11.6% (R+)

0:30

AUD

Building Approvals (YoY) (FEB)

-21.8%

-12.8%

-16.4% (R+)

0:30

AUD

Private Sector Credit (MoM) (FEB)

0.5%

0.3%

0.3%

0:30

AUD

Private Sector Credit (YoY) (FEB)

3.4%

3.2%

3.3%

1:30

JPY

Labor Cash Earnings (YoY) (FEB)

0.3%

0.3%

0.4% (R+)

2:00

NZD

NBNZ Activity Outlook (MAR)

14.7

-

36.6

2:00

NZD

NBNZ Business Confidence (MAR)

-8.7

-

34.5

2:00

NZD

M3 Money Supply (YoY) (FEB)

5.2%

-

4.3% (R-)

5:00

JPY

Housing Starts (YoY) (FEB)

10.1%

7.4%

2.7%

5:00

JPY

Annualized Housing Starts (FEB)

0.872

0.849M

0.847M

5:00

JPY

Construction Orders (YoY) (FEB)

19.5%

-

-10.7%

The New Zealand Dollar underperformed in overnight trade, down as much as 0.5 percent on average against the major currencies, as Business Confidence dropped into negative territory for the first time in 23 months according to a report from the National Bank of New Zealand. The decline was chalked up to the debilitating earthquake that hit Christchurch last month.

The Australian Dollar was likewise under pressure as traders overlooked marginal improvements in Retail Sales and Private Sector Credit readings to focus on an unexpected and sharp drop in Building Approvals. Permits fell 7.4 percent in February amid expectations for a 4 percent increase, registering the second consecutive decline.

The Japanese Yen advanced amid speculation local companies were buying the currency, capitalizing on recent weakness to hedge against the impact of future gains on exports. The Yen added as much as 0.4 percent against the majors.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

GBP

Nationwide House Prices s.a. (MoM) (MAR)

0.0%

0.3%

Medium

6:00

GBP

Nationwide House Prices n.s.a. (YoY) (MAR)

-0.6%

-0.1%

Medium

6:45

EUR

French Producer Prices (MoM) (FEB)

0.8%

0.9%

Low

6:45

EUR

French Producer Prices (YoY) (FEB)

6.2%

5.6%

Low

7:55

EUR

German Unemployment Change (MAR)

-25K

-52K

High

7:55

EUR

German Unemployment Rate s.a. (MAR)

7.2%

7.3%

Medium

8:00

EUR

Italian Producer Price Index (YoY) (FEB)

-

5.2%

Low

8:00

EUR

Italian Producer Price Index (MoM) (FEB)

0.8%

1.1%

Low

9:00

EUR

Euro-Zone Consumer Price Index Est. (YoY) (MAR)

2.4%

2.4%

Medium

9:00

EUR

Italian CPI (NIC incl. tobacco) (MoM) (MAR P)

0.3%

0.3%

Low

9:00

EUR

Italian CPI (NIC incl. tobacco) (YoY) (MAR P)

2.4%

2.4%

Low

9:00

EUR

Italian CPI - EU Harmonized (MoM) (MAR P)

1.6%

0.2%

Low

9:00

EUR

Italian CPI - EU Harmonized (YoY) (MAR P)

2.2%

2.1%

Low

The flash Euro Zone Consumer Price Index figure is in focus as European Central Bank rate hike expectations continue to climb, with traders seeing a 100 percent probability of at least a 25bps increase while the likelihood of a larger one stands at the highest in five weeks. This seems overdone considering the central bank failed to pawn off the responsibility to keep periphery borrowing costs in check on the EFSF – which would have allowed it to focus solely on inflation – while EU leaders have opted to delay dealing with near-term sovereign fears until June. This means policymakers will be wary of helping to bring at-risk countries like Portugal and Spain closer toward a bailout, hinting a robust rate hike cycle is probably not in the cards. With that in mind, the headline inflation rate is expected to hold unchanged at 2.4 percent for the third consecutive month, suggesting price growth may be topping and opening the door for Euro selling as traders pare back tightening expectations.

Downward pressure on the single currency may be compounded as Ireland releases the results of its bank stress tests, with the markets expecting the report to show the former Celtic Tiger’s lenders remain in dour shape. Early estimates suggest an additional €13 billion in fresh capital will be needed, putting the total cost of bailout out Ireland’s banks at about €70 billion (of which €10 billion came from the rescue package put together by the EU and the IMF). If Ireland is forced to tap the EFSF for the added funds, this will leave less on the table for other efforts (i.e. Portugal). Furthermore, the housing-fueled crisis in Ireland bears a lot of similarities with the situation in Spain, the Euro Zone’s fourth-largest economy whose rescue is likely beyond the scope of the EFSF as it stands. To the extent that today’s news is dually applicable to both countries, the outcome may prove to weigh heavily on the Euro considering the perceived threat of a blow-up outside the rescue fund’s means has become a central driver of price action, with EURUSD showing a hefty inverse correlation with 5-year Spanish CDS spreads.

German Unemployment figures promise a bit of a silver lining to what is otherwise shaping up to be a Euro-negative environment, with the economy expected to add 25,000 jobs in March as the jobless rate falls to a 20-year low of 7.2 percent. The outcome may not prove to be meaningfully supportive however considering the rosy state of the German labor market is something traders have been well aware of for some time, suggesting it has been amply priced into the exchange rate.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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