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FOREX: US Dollar Under Pressure as Stocks Drive Higher to Start 2012

FOREX: US Dollar Under Pressure as Stocks Drive Higher to Start 2012

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Aussie, NZ Dollars Outperform as Asian Stocks Rise on China, Australia PMI Data
  • Swiss and UK PMI Figures Key in Europe, German Jobs Report an After-Thought
  • ISM Data, FOMC Minutes Likely to Bolster “Risk-On” Mood, Weigh on US Dollar

The US Dollar (ticker: USDollar) pushed broadly lower overnight, down as much as 0.3 percent on average against the majors, as a rally across Asian stock exchanges sapped demand for the go-to safe haven currency. The MSCI Asia Pacific regional benchmark equity index (excluding Japan, where trading was closed for a Bank Holiday) rose 1.7 percent after Chinese and Australian Manufacturing PMI readings swung back above the 50 “boom-bust” threshold, meaning both countries’ factory sectors grew in December after contracting in the previous month. Not surprisingly, the Australian and New Zealand Dollars – the major currencies closest correlated to global stock prices – outperformed heading into the European session.

Looking ahead, a brief but potent European economic calendar offers German Unemployment figures as well as Swiss and UK Manufacturing PMI updates. The former report is expected to show the ranks of the unemployed shrank by another 10,000 in December while the jobless rate held at a record-low 6.9 percent. While certainly not a poor outcome, it is hardly surprising. Indeed, Germany’s unemployment rate has been steadily dropping relative to the G10 average since the second quarter of 2009, so today’s report will not offer anything materially new that has not already made its way into the Euro exchange rate and certainly nothing that sustainably offsets headwinds from the Eurozone debt crisis. As such, the data’s market-moving potential seems limited.

The latter two metrics ought to prove more interesting: expectations call for the manufacturing sector to shrink for the fourth straight month in Switzerland and the third consecutive one in the UK. Both countries are major exporters of machinery and manufactured goods to the Euro area so today’s releases will offer a timely gauge of the debt crisis’ impact on regional growth. Importantly, the slide in median forecasts for UK and Swiss 2012 GDP growth over recent months suggests investors already expect a dismal year ahead, meaning upside surprises are likely to prove most market-moving. With that in mind, stronger than expected results bode well for the Euro as well as stocks-linked currencies at the expense of the US Dollar.

On the sentiment front, stock index futures tracking major European bourses are pointing firmly higher ahead of the opening bell, meaning the greenback is likely to remain under pressure against its sentiment-driven counterparts.Later in the session, the spotlight will turn to US ISM Manufacturing figures as well as minutes from the December’s Federal Reserve policy meeting. Factory-sector growth is expected to accelerate to the fastest in six months while Ben Bernanke and company will probably offer at least a hint of supportive commentary considering they opted not to compound existing easing efforts. On balance, this bolsters the case a “risk-on” session as Wall Street comes online.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

AiG Performance of Manufacturing Index (DEC)

50.2

-

47.8

00:01

GBP

Lloyds Business Barometer (DEC)

-23

-

-20

01:07

CNY

China Non-manufacturing PMI (DEC)

56.0

-

46.7

05:30

AUD

RBA Commodity Price Index Au (DEC)

104.5

-

107.2 (R-)

05:30

AUD

RBA Commodity Index SDR (YoY) (DEC)

10.9%

-

17.5% (R-)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

08:30

CHF

SVME-Purchasing Managers Index (DEC)

45.4

44.8

Medium

08:55

EUR

German Unemployment Change (DEC)

-10K

-20K

High

08:55

EUR

German Unemployment Rate s.a. (DEC)

6.9%

6.9%

High

09:30

GBP

Purchasing Manager Index Manufacturing (DEC)

47.3

47.6

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2907

1.3057

GBPUSD

1.5474

1.5661

--- 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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