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FOREX: Jittery Headline-Driven Trade to Continue Before EU Summit

FOREX: Jittery Headline-Driven Trade to Continue Before EU Summit

2011-12-07 08:13:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • US Dollar Sold as Asian Bourses Advance, Unwinding Yesterday’s Selloff
  • Sarkozy, Geithner Meeting in Focus as Jittery Markets Cling to Headlines
  • ECB to Offer First Batch of 3-Month Dollar Loans After Swap Rate Cut
  • German, UK Industrial Production Data to Underscore Regional Slowdown

The US Dollar (ticker: USDollar) sold off in overnight trade, down as much as 0.3 percent against its leading counterparts, as stocks rose in Asian trade and sapped demand for the safe-haven currencies. The MSCI Asia Pacific regional benchmark equity index added 1.4 percent. The improvement in risk appetite likely follows a reassessment of yesterday’s selloff in the wake news that Standard & Poor’s put 15 Eurozone countries including the six AAA sovereigns on negative credit watch, with the move to downgrade presumably linked to the outcome of this week’s EU leaders’ summit.

We argued earlier that the announcement’s initially negative impact on sentiment was likely to fade because the markets were already convinced of the existential importance of this week’s sit-down to stability in the Eurozone without the added threat of a mass reduction in sovereign credit ratings. With that in mind, the S&P announcement was not a game-changer relative to what was already priced into asset values and so a retracement of the subsequent move lower across risky assets appeared reasonable. Sizing up current price action, that is precisely what seemed to be driving Asian bourses higher today.

Looking ahead, the singular focus on the Eurozone debt crisis is likely to put the spotlight on a meeting between French President Nicolas Sarkozy and US Treasury Secretary Tim Geithner. Any comments, either by way of an official press conference or from the sidelines of the meeting, fleshing out the weak points in the Franco-German plan for greater fiscal integration within the currency bloc will be in focus. Traders’ primary concern is whether the arrangement goes far enough in creating a coherent fiscal backdrop to the European Central Bank to step up bond-buying efforts and bear down on region-wide borrowing costs. Separately, the ECB will offer its first allotment of 3-month US Dollar loans after last week’s coordinated 50bps reduction in swap rates by major central banks, with demand from financial institutions treated as a gauge of funding stress within the Eurozone.

On the data front, European Industrial Production figures are on tap. German output is expected to add a meager 3.7 percent in the year through October, marking the weakest reading in nearly two years. Meanwhile, UK production is expected to shrink for the fourth consecutive month over the same period, matching September’s 0.7 percent drawdown. The results promise to remind investors that even if outright Eurozone meltdown is avoided, the Euro and British Pound remain vulnerable as sluggish growth beckons dovish monetary policy across the region.

Related: Better-Than-Expected GDP Figures Boost Australian Dollar

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:01

GBP

BRC Shop Price Index (YoY) (NOV)

2.0%

-

2.1%

0:30

AUD

Gross Domestic Product (QoQ) (3Q)

1.0%

0.8%

1.4% (R+)

0:30

AUD

Gross Domestic Product (YoY) (3Q)

2.5%

1.9%

1.9% (R+)

5:00

JPY

Coincident Index (OCT P)

90.3

90.3

89.0

5:00

JPY

Leading Index (OCT P)

91.5

91.6

91.5

5:30

AUD

Foreign Reserves (A$) (NOV)

44.8B

-

44.9B

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

CHF

Unemployment Rate (NOV)

3.1%

2.9%

Medium

6:45

CHF

Unemployment Rate s.a. (NOV)

3.0%

3.0%

Medium

7:45

EUR

French Trade Balance (€) (OCT)

-6.0B

-6.3B

Low

8:15

EUR

ECB Calls for Bids in 3m USD Tender

-

-

Medium

9:00

EUR

Italian Industrial Production n.s.a. (YoY) (OCT)

-2.8%

-2.7%

Low

9:00

EUR

Italian Industrial Production s.a. (MoM) (OCT)

-0.3%

-4.8%

Low

9:00

EUR

Italian Industrial Production w.d.a. (YoY) (OCT)

-2.7%

-2.7%

Low

9:30

GBP

Industrial Production (MoM) (OCT)

-0.3%

0.0%

Medium

9:30

GBP

Industrial Production (YoY) (OCT)

-0.7%

-0.7%

Medium

9:30

GBP

Manufacturing Production (MoM) (OCT)

-0.3%

0.2%

Medium

9:30

GBP

Manufacturing Production (YoY) (OCT)

1.4%

2.0%

Medium

10:00

EUR

ECB Announces Allotment in 3m USD Tender

-

-

Medium

10:45

EUR

Sarkozy, Geithner Meet in Paris

-

-

High

11:00

EUR

German Industrial Production (YoY) (OCT)

3.5%

5.4%

Medium

11:00

EUR

German Industrial Production (MoM) (OCT)

0.3%

-2.7%

Medium

15:00

GBP

NIESR Gross Domestic Product Estimate (NOV)

-

0.5%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3402

1.3478

GBPUSD

1.5566

1.5678

--- 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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