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FOREX: Euro, Risk Appetite Torn Between Conflicting EU Crisis News

FOREX: Euro, Risk Appetite Torn Between Conflicting EU Crisis News

2011-10-05 07:31:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • US Dollar, Yen Outperform Rise as Moody’s Cuts Italy’s Debt Rating
  • EU Commissioner Rehn Talks Up Coordinated EU Bank Recapitalization
  • UK GDP, Services PMI May Add Fodder to Building QE Expectations
  • US ADP Jobs Data in Focus Ahead of Friday’s Nonfarm Payrolls Report

Choppy overnight trade culminated in familiar risk-averse dynamics ahead of the opening bell in Europe, with the safe-haven US Dollar and Japanese Yen pushing higher against all of their major counterparts. The EU debt crisis remained the reason du jour to sell after Moody’s downgraded Italy’s sovereign credit rating for the first time in nearly two decades.

S&P 500 stock index futureshave erased earlier losses however, hinting sentiment may recover on the back of a widely circulated story from the Financial Times claiming that Euro Zone finance ministers are plotting a coordinated recapitalization of the region’s banks. The article quoted EU Economic Affairs Commissioner Olli Rehn saying “There is an increasingly shared view that we need a concerted, coordinated approach…Capital positions of European banks must be reinforced…This should be regarded as an integral part of the EU’s comprehensive strategy to restore confidence and overcome the crisis.”

UK economic data headlines the calendar, with the final revision of second-quarter Gross Domestic Product figures and September’s service-sector PMI reading due to cross the wires. The former reading is set to confirm the economy added just 0.2 percent in the three months through June while the latter shows the non-manufacturing sector grew at the slowest pace since December of last year. The outcomes threaten to weigh on the British Pound, reinforcing traders’ suspicions that another round of quantitative easing is becoming increasingly likely ahead of Thursday’s Bank of England policy announcement.

Later in the day, the US data docket will enter the spotlight as the preliminary ADP Employment report hits the tape ahead of Friday’s release of the closely-watched official labor-market figures, with expectations calling for hiring to slow for the third consecutive month in September. Separately, the ISM Non-Manufacturing Composite gauge is forecast to show service-sector growth slowed over the same period. The health of the US economy continues to act as a proxy for the fate of the global recovery at large, making data out of the world’s top economy a key component in shaping market-wide risk appetite.

Related: Australian Dollar Continues Slide Despite Retail Data

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

AiG Performance of Service Index (SEP)

50.3

-

52.1

23:01

GBP

BRC Shop Price Index (YoY) (SEP)

2.7%

-

2.7%

0:30

AUD

Retail Sales s.a. (MoM) (AUG)

0.6%

0.2%

0.6% (R+)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:45

EUR

Italian PMI Services (SEP)

47.0

48.4

Low

7:50

EUR

French PMI Services (SEP F)

52.5

52.5

Low

7:55

EUR

German PMI Services (SEP F)

50.3

50.3

Medium

8:00

EUR

Euro-Zone PMI Composite (SEP F)

49.2

49.2

Medium

8:00

EUR

Euro-Zone PMI Services (SEP F)

49.1

49.1

Medium

8:30

GBP

PMI Services (SEP)

50.5

51.1

Medium

8:30

GBP

Official Reserves (Changes) (SEP)

-

$2237M

Low

8:30

GBP

Gross Domestic Product (QoQ) (2Q F)

0.2%

0.2%

High

8:30

GBP

Gross Domestic Product (YoY) (2Q F)

0.7%

0.7%

High

8:30

GBP

Private Consumption (2Q)

-0.3%

-0.6%

Low

8:30

GBP

Government Spending (2Q)

-0.1%

0.5%

Low

8:30

GBP

Gross Fixed Capital Formation (2Q)

0.7%

-2.0%

Low

8:30

GBP

Exports (2Q)

-0.1%

2.4%

Low

8:30

GBP

Imports (2Q)

-1.0%

-2.4%

Low

8:30

GBP

Total Business Investment (QoQ) (2Q)

-

-3.2%

Low

8:30

GBP

Total Business Investment (YoY) (2Q)

-

2.7%

Low

8:30

GBP

Current Account (£) (2Q)

-11.0B

-9.4B

Low

9:00

EUR

Euro-Zone Retail Sales (MoM) (AUG)

-0.3%

0.2%

Medium

9:00

EUR

Euro-Zone Retail Sales (YoY) (AUG)

-0.7%

-0.3%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3207

1.3430

GBPUSD

1.5287

1.5543

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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