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FOREX: Dollar, Yen Likely to Extend Gains as Stock Markets Drop Anew

FOREX: Dollar, Yen Likely to Extend Gains as Stock Markets Drop Anew

2011-10-18 07:29:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • FX Markets Yield Muted Response to RBA Minutes, Chinese GDP Report
  • UK CPI, German ZEW Data Unlikely to Stir Much FX Market Volatility
  • S&P 500 Futures, EU CDS Rates Point to Renewed Risk Aversion Ahead

UK Consumer Price Index figures and the German ZEW Survey of investor confidence headline the economic calendar in European hours. The former reading is expected to show inflation accelerated to 4.9 percent in September, marking the highest reading in three years. The outcome is likely to pass with little fanfare considering its limited implications for the monetary policy after the Bank of England restarted asset purchases earlier this month.

Meanwhile, the latter report is forecast to mark the eighth consecutive month of deterioration in analyst sentiment, registering at the lowest since December 2008. Here too however, the reading offers nothing particularly surprising that has not largely made its way into the exchange rate some time ago. As such, a meaningfully strong reaction from price action seems unlikely.

Rather, risk sentiment is likely to remain as the most potent driver of the major currencies, with the EU debt crisis still front and center. S&P 500 stock index futures are pointing lower while most Euro Zone credit default swap (CDS) rates – a measure of the cost of insuring against a country’s default that rises with increased market stress – are pushing upward, hinting safe-haven currencies (USD, JPY) are likely to resume their advance.

The US Dollar and Japanese Yen corrected gently lower in overnight trade, sliding 0.3 and 0.2 percent respectively against their leading counterparts having rallied aggressively amid renewed risk aversion over the preceding 24 hours. The economic calendar proved to have only limited influence on price action.

Indeed, the Australian Dollar was little changed after minutes from the October 3 Reserve Bank of Australia monetary policy meeting showed the central bank saw economic growth as “somewhat slower” than expected while the inflation outlook had become “less concerning”, opening the door for interest rate cuts. The reaction to Chinese Growth Domestic Product figures that showed the world’s second-largest economy grew at the slowest annual rate in two years proved likewise muted.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:30

AUD

Reserve Bank's Board October Minutes

-

-

-

2:00

CNY

Real GDP YTD (YoY) (3Q)

9.4%

9.5%

9.6%

2:00

CNY

Real GDP (QoQ) (3Q)

2.3%

-

2.4% (R+)

2:00

CNY

Real GDP (YoY) (3Q)

9.1%

9.3%

9.5%

2:00

CNY

Industrial Production YTD (YoY) (SEP)

14.2%

14.1%

14.2%

2:00

CNY

Industrial Production (YoY) (SEP)

13.8%

13.4%

13.5%

2:00

CNY

Fixed Assets Inv Excl. Rural YTD (YoY) (SEP)

24.9%

24.8%

25.0%

2:00

CNY

Retail Sales YTD (YoY) (SEP)

17.0%

16.9%

16.9%

2:00

CNY

Retail Sales (YoY) (SEP)

17.7%

17.0%

17.0%

5:30

JPY

Nationwide Department Store Sales (YoY) (SEP)

-2.4%

-

-2.9%

5:30

JPY

Tokyo Department Store Sales (YoY) (SEP)

-3.6%

-

-1.7%

6:00

JPY

Machine Tool Orders (YoY) (SEP F)

20.1%

-

20.3%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

EU 25 New Car Registrations (SEP)

-

7.7%

Low

8:30

GBP

Consumer Price Index (MoM) (SEP)

0.4%

0.6%

Medium

8:30

GBP

Consumer Price Index (YoY) (SEP)

4.9%

4.5%

High

8:30

GBP

Consumer Price Index – Core (YoY) (SEP)

3.2%

3.1%

Medium

8:30

GBP

Retail Price Index (SEP)

237.6

236.1

Low

8:30

GBP

Retail Price Index (MoM) (SEP)

0.5%

0.6%

Low

8:30

GBP

Retail Price Index (YoY) (SEP)

5.4%

5.2%

Low

8:30

GBP

Retail Price Index Ex Mort Interest (YoY) (SEP)

5.5%

5.3%

Low

9:00

EUR

German ZEW Survey (Econ. Sentiment) (OCT)

-45.0

-43.3

High

9:00

EUR

German ZEW Survey (Curr. Situation) (OCT)

40.0

43.6

Medium

9:00

EUR

Euro-Zone ZEW Survey (Econ. Sentiment) (OCT)

-

-44.6

Medium

9:00

EUR

Italian Current Account (€) (AUG)

-

1663M

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3605

1.3859

GBPUSD

1.5700

1.5817

--- 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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