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FOREX: Euro at Risk as Debt Fears Return, US Dollar May Rebound

FOREX: Euro at Risk as Debt Fears Return, US Dollar May Rebound

2011-08-30 06:14:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • Dollar May Recover as US Consumer Confidence Hits 13-Month Low
  • Euro Vulnerable with Stage Set for the Return of EU Debt Crisis Fears
  • NZ Dollar Outperforms on Stock Gains, Building Permits Data in Asia

A relatively quiet economic calendar is on tap in Europe, with traders looking ahead to the US Consumer Confidence reading on tap late into the session as traders digesting the disappointing absence of additional stimulus measures in last Friday’s closely-watched Ben Bernanke speech are reminded of the increasingly apparent slowdown in the global recovery. Sentiment is expected to drop to the lowest in 13 months in August. S&P 500 stock index futures are trading lower ahead of the release, hinting a return to risk aversion may mark an upward reversal in the safety-linked US Dollar, Japanese Yen and Swiss Franc after the three haven currencies. The Federal Reserve will publish minutes from its August FOMC policy meeting after the European closing bell.

On the European docket, Italy is in the spotlight as the country sells 8 billion euro in debt spread across 2014-2018 maturities. The country’s austerity plan – initially announced on August 12 – was watered down considerably this week, with many of the key tax hikes and budget cuts originally promised now replaced by a scheme to fight tax evasion (an interesting choice of approach after its poor performance in Greece). With this in mind, the markets will be on the lookout for rumors of ECB involvement in today’s auction, which would suggest that Italy was unable to secure the confidence of investors independently and thereby reopen the door for sovereign risk fears in the region. The central bank has already bought 120.3 billion euro in periphery-country debt.

Indeed, the Euro Zone debt crisis remains broadly unresolved and the lofty pronouncements made at the July 21 EU leaders’ summit are becoming increasingly difficult to implement, with Greece once again a sore spot as Finland threatens to withdraw support for the Mediterranean nation’s second bailout while policymakers in Athens mull scrapping the controversial private investor bond swap. Meanwhile, German Chancellor Angela Merkel is under fire, with media reports suggesting she may not have enough votes in the Bundestag to approve the July 21 plan while the country’s high court may rule it unconstitutional (as being in violation of Germany’s fiscal sovereignty). Against this backdrop, economic data expected to continue to deteriorate. The final revision of Augusts’ Euro Zone Consumer Confidence reading is expected to confirm flash estimates putting sentiment at the lowest in 14 months while the Business Climate Indicator returns the weakest reading since March 2010.

The New Zealand Dollar outperformed in otherwise quiet overnight trade, driven higher by the combination of supportive risk appetite and supportive economic data. The MSCI Asia Pacific regional stock index rose 1.6 percent, disproportionately boosting the Kiwi as the holder of the most robust interest rate hike outlook in the G10. Indeed, a Credit Suisse gauge of traders’ priced in expectations call for at least 50bps in interest rate increases over the coming 12 months, marking the RBNZ as the only major central bank expected to tighten over that period. A robust Building Approvals reading also helped, with permits unexpectedly soaring 13 percent to an eight-month high in July, marking the largest monthly increase in over three years.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Building Permits (MoM) (JUL)

13.0%

-

-1.0% (R+)

23:01

GBP

Lloyds Business Barometer (AUG)

-3

-

19

23:30

JPY

Job-To-Applicant Ratio (JUL)

0.64

0.64

0.63

23:30

JPY

Household Spending (YoY) (JUL)

-2.1%

-2.9%

-4.2%

23:30

JPY

Jobless Rate (JUL)

4.7%

4.6%

4.6%

23:50

JPY

Retail Trade (YoY) (JUL)

0.7%

1.3%

1.2% (R+)

23:50

JPY

Retail Trade s.a. (MoM) (JUL)

-0.3%

0.5%

2.9%

23:50

JPY

Large Retailers' Sales (JUL)

0.8%

0.5%

-0.5%

0:06

CNY

Leading Index (JUL)

102.25

-

102.04 (R+)

1:30

AUD

Building Approvals MoM (JUL)

1.0%

2.0%

-3.6% (R-)

1:30

AUD

Building Approvals YoY (JUL)

-15.0%

-12.4%

-14.3% (R+)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

CHF

UBS Consumption Indicator (JUL)

-

1.48

Medium

8:00

EUR

Italian Retail Sales s.a. (MoM) (JUN)

0.1%

-0.1%

Low

8:00

EUR

Italian Retail Sales (YoY) (JUN)

-0.8%

-0.6%

Low

8:30

GBP

Net Consumer Credit (JUL)

0.4B

0.4B

Medium

8:30

GBP

Net Lending Sec. on Dwellings (JUL)

0.8B

-0.1B

Medium

8:30

GBP

Mortgage Approvals (JUL)

49.0K

48.4K

Medium

8:30

GBP

M4 Money Supply (MoM) (JUL)

-

-0.5%

Low

8:30

GBP

M4 Money Supply (YoY) (JUL)

-

-0.7%

Low

8:30

GBP

M4 Ex OFCs 3M Annualised (JUL)

-

0.8%

Low

9:00

EUR

Italy to Sell €8B in 2014-2022 Bonds

-

-

High

9:00

EUR

Euro-Zone Business Climate Indicator (AUG)

0.10

0.45

Medium

9:00

EUR

Euro-Zone Consumer Confidence (AUG F)

-16.6

-16.6

Medium

9:00

EUR

Euro-Zone Economic Confidence (AUG)

100.2

103.2

Low

9:00

EUR

Euro-Zone Industrial Confidence (AUG)

-2.0

1.1

Low

9:00

EUR

Euro-Zone Services Confidence (AUG)

6.0

7.9

Low

9:00

EUR

Italian Business Confidence (AUG)

97.0

98.5

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4468

1.4592

GBPUSD

1.6337

1.6467

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

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