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FOREX: Risk Trends Searching for Direction, Bank of England Inflation Report on Tap

FOREX: Risk Trends Searching for Direction, Bank of England Inflation Report on Tap

2011-05-11 06:17:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • Australian Dollar Outperforms, Following Stocks Higher Overnight
  • Chinese Inflation Tops 4% Again, Hinting Further Tightening Ahead

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4314

1.4457

GBPUSD

1.6311

1.6416

The Euro and the British Pound were little changed in overnight trade. The single currency consolidated in a narrow range around 1.44 to the US Dollar while Sterling edged gently lower ahead of today’s release of the Bank of England’s quarterly inflation report (see below). We are looking for attractive EURUSD and GBPUSD selling opportunities in the days ahead.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:00

NZD

REINZ Housing Price Index (APR)

3245.4

-

3209.7

22:00

NZD

REINZ Housing Price Index MoM% (APR)

1.1%

-

0.5%

22:00

NZD

REINZ House Sales (YoY) (APR)

-4.2%

-

-5.1%

23:50

JPY

Official Reserve Assets (APR)

$1135.5B

-

$1116.0B

2:00

CNY

New Yuan Loans (APR)

739.6B

700B

679.4B

2:00

CNY

Money Supply M2 (YoY) (APR)

15.3%

16.6%

16.6%

2:00

CNY

Money Supply M1 (YoY) (APR)

12.9%

15.5%

15.0%

2:00

CNY

Money Supply M0 (YoY) (APR)

14.7%

-

14.8%

2:00

CNY

Producer Price Index (YoY) (APR)

6.8%

7.0%

7.3%

2:00

CNY

Industrial Production YTD (YoY) (APR)

14.2%

14.5%

14.4%

2:00

CNY

Industrial Production (YoY) (APR)

13.4%

14.6%

14.8%

2:00

CNY

Consumer Price Index (YoY) (APR)

5.3%

5.2%

5.4%

2:00

CNY

Non-Rural Fixed Assets Inv YTD (YoY) (APR)

25.4%

24.9%

25.0%

2:00

CNY

Retail Sales YTD (YoY) (APR)

16.5%

16.7%

16.3%

2:00

CNY

Retail Sales (YoY) (APR)

17.1%

17.6%

17.4%

5:00

JPY

Coincident Index (MAR P)

103.6

103.7

106.8

5:00

JPY

Leading Index (MAR P)

99.5

99.8

104.0 (R-)

The Australian Dollar narrowly outperformed in quiet overnight trade, rising as much as 0.3 percent on average against its major counterparts, as stocks rose in Asia and pulled the sentiment-linked currency along for the ride. The MSCI Asia Pacific regional benchmark equity index added 0.6 percent – marking the largest daily increase in over a week – with commodities-linked shares leading the way higher on the back of a rebound in raw materials prices.

A hefty dollop of Chinese economic data yielded mixed results. M2 – the broadest measure of the money supply – grew at the slowest pace in 29 months. Meanwhile New Yuan Loans rose more than expected to 739.6 billion – the highest in three months – while the Consumer Price Index reading showed the annual inflation rate cooled less than forecast to 5.3 percent.

On balance, the data set did not offer a clear reading on where Beijing’s efforts to cool the buoyant economy and contain price growth will go from here, but the path of least resistance appears to favor the hawkish side of the spectrum. Indeed, the headline CPI reading has outpaced the government’s 4 percent target every month so far this year and Vice Premier Wang Qishan said inflation was the “most pressing problem” facing his country earlier this week.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German CPI (MoM) (APR F)

0.2%

0.2%

Medium

6:00

EUR

German CPI (YoY) (APR F)

2.4%

2.4%

Medium

6:00

EUR

German CPI - EU Harmonised (MoM) (APR F)

0.2%

0.2%

Medium

6:00

EUR

German CPI - EU Harmonised (YoY) (APR F)

2.6%

2.6%

Medium

6:45

EUR

French Current Account (€)

-

-5.2B

Low

8:30

GBP

Trade Balance Non EU (£)

-£3500

-£2849

Low

8:30

GBP

Total Trade Balance (£)

-£3250

-£2443

Low

8:30

GBP

Visible Trade Balance (£)

-£7500

-£6776

Medium

9:30

GBP

Bank of England Inflation Report

-

-

High

The publication of the Bank of England’s Quarterly Inflation Reportheadlines the economic calendar in European hours.Last time around, policymakers set off hawkish speculation by intimating that they were basing their price growth expectations on at least 50bps in tightening through 2011, and traders will be keen to learn of any changes to that message.

On balance, the document seems unlikely to offer much by way of new insight considering the BOE used it as the basis to keep the current policy setting unchanged once again last week. Indeed, the monetary policy landscape is likely to remain relatively static heading into next week when minutes from the latest sit-down of the rate-setting MPC are released.

Sentiment trends show little conviction, with stock index futures tracking the S&P 500 a go-to benchmark for overall risk appetite – essentially flat ahead of the opening bell in Europe.

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

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