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FOREX: Euro Debt Crisis Takes Back Seat, Spotlight on Federal Reserve

FOREX: Euro Debt Crisis Takes Back Seat, Spotlight on Federal Reserve

2011-12-13 08:35:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • FX Majors Consolidate vs US Dollar in Quiet Overnight Trade
  • FOMC Rate Decision in Focus as US Data Dims QE3 Outlook
  • UK CPI, German ZEW Data Unlikely to Prove Market-Moving

The major currencies consolidated in choppy narrow ranges against the US Dollar overnight as markets digested yesterday’s breakneck volatility amid disappointment following last week’s EU leaders’ summit. Eurozone event risk is relatively limited over the coming 24 hours, with only a pair of bond auctions from Spain and theEFSF standing out on the docket. The bailout fund will aim to sell up to €2 billion in 91-day paper while Spain is set to auction off 12- and 18-month bills. On balance, the short tenor of the debt on offer is likely to keep any market reaction to the outcome relatively short-lived.

Looking further ahead, the Federal Reserve monetary policy announcement will enter into the spotlight. No policy changes are reasonably expected from the rate-setting FOMC committee but the language of the statement following the meeting ought to prove telling. Indeed, it is surely becoming harder for policymakers to glaze over the increasingly chipper pace of US recovery with the pulse of economic data steadily improving through the second half of the year and economists’ GDP forecasts showing that – in contrast to the Eurozone and China (two of the three major global output engines) – the North American behemoth is expected to see growth accelerate next year. In fact, mere hours before the Fed announcement, the Retail Sales report is set to show receipts growth accelerated in November.

With this in mind, the possibility of a return to quantitative easing (QE) seems decidedly unlikely over the near term. The implications of a FOMC policy statement alluding to this increasingly apparent reality are somewhat unclear however. On one hand such an outcome may open the door for a push higher in US Treasury yields, reflecting the hefty US budget deficit and American politicians’ apparent inability to do anything about it at least until after next year’s Presidential election, driving the US Dollar higher. On the other, it would likely prove supportive for broader risk appetite by bolstering hopes that the world’s top economy will help offset headwinds to global demand from elsewhere (especially Europe), weighing on the safe-haven greenback.

On the European data docket, UK Consumer Price Index figures are set to show the annual pace of inflation slowed for the second month to 4.8 percent, reinforcing the dovish lean at the Bank of England but offering little new information that could unleash major volatility. Likewise, the German ZEW Survey of investor confidence is forecast to show sentiment soured for the tenth consecutive month, which is hardly supportive but also not particularly surprising, meaning its ability to meaningfully move the Euro is likely limited.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

New Zealand Manpower Survey (1Q)

16%

-

23%

21:40

AUD

Australia Manpower Survey (1Q)

13%

-

16%

21:45

NZD

Food Prices (MoM) (NOV)

0.2%

-

-1.3%

23:50

JPY

Tertiary Industry Index (MoM) (OCT)

0.6%

0.4%

-0.7%

0:01

GBP

RICS House Price Balance (NOV)

-17%

-25%

-24%

0:30

AUD

Dwelling Starts (3Q)

-6.8%

-1.0%

-4.1% (R+)

0:30

AUD

NAB Business Confidence (NOV)

2

-

2

0:30

AUD

NAB Business Conditions (NOV)

1

-

-1

1:00

JPY

Japan Manpower Survey (1Q)

11

-

10

5:01

CNY

China Manpower Survey (1Q)

17%

-

25%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French CPI – EU Harmonised (MoM) (NOV)

0.1%

0.3%

Low

6:30

EUR

French CPI – EU Harmonised (YoY) (NOV)

2.5%

2.5%

Low

6:30

EUR

French CPI (MoM) (NOV)

0.1%

0.2%

Low

6:30

EUR

French CPI (YoY) (NOV)

2.4%

2.3%

Low

6:30

EUR

French CPI Ex Tobacco Index (NOV)

122.78

122.73

Low

6:45

CHF

SECO December 2011 Economic Forecasts

-

-

Medium

9:30

GBP

DCLG UK House Prices (YoY) (OCT)

-

-1.4%

Low

9:30

GBP

Consumer Price Index (MoM) (NOV)

0.2%

0.1%

Medium

9:30

GBP

Consumer Price Index (YoY) (NOV)

4.8%

5.0%

High

9:30

GBP

Consumer Price Index – Core (YoY) (NOV)

3.3%

3.4%

High

9:30

GBP

RPI (NOV)

238.4

238

Low

9:30

GBP

RPI (MoM) (NOV)

0.2%

0.0%

Low

9:30

GBP

RPI (YoY) (NOV)

5.1%

5.4%

Low

9:30

GBP

RPI Ex Mort Int. Payments (YoY) (NOV)

5.3%

5.6%

Low

9:30

EUR

Spain to Sell 364- and 553-day Bills

-

-

Medium

10:00

EUR

German ZEW Survey (Curr. Situation) (DEC)

31

34.2

Medium

10:00

EUR

Euro-Zone ZEW Survey (Sentiment) (DEC)

-

-59.1

Medium

10:00

EUR

German ZEW Survey (Sentiment) (DEC)

-55.8

-55.2

High

11:00

EUR

EFSF to Sell €2bn in 91-day Bills

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3105

1.3328

GBPUSD

1.5527

1.5651

--- 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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