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FOREX: Dollar Weakness to Continue, Merkel / Lagarde Meeting on Tap

FOREX: Dollar Weakness to Continue, Merkel / Lagarde Meeting on Tap

2012-01-10 07:51:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • US Dollar Slumps as Stocks Rise in Asia, Denting Safety Demand
  • Merkel/Lagarde Meeting, Greek Bill Sale Lead European Calendar
  • S&P 500 Index Futures Hint Recovery in Risk Appetite to Continue

The US Dollar (ticker: USDollar) traded broadly lower in overnight trade, down as much as 0.3 percent on average against its leading counterparts, as gains on Asian stock exchanges sapped demand for the safe-haven currency. The MSCI Asia Pacific regional equity benchmark index rose 1.1 percent after US Consumer Credit rose to $20.4 billion – the highest in at least 4 years – while Chinese Imports grew at the slowest pace in 26 months. The former release suggested demand was picking up in Asia’s go-to export market while the latter hinted Beijing may press forward with additional reserve ratio requirement cuts after reducing the rate to 21 percent in December. Not surprisingly, the stocks-correlated Australian, New Zealand and Canadian Dollars outperformed.

Looking ahead, the economic calendar is quiet in European hours. Greece will sell €1.25B in 182-day bills, but the short tenor of the securities on offer and the already well-established predicament facing Athens at least over the near term is likely to keep the outcome from being particularly market-moving. Indeed, Eurozone debt crisis have been focused on larger economies (Spain, Italy and to some extent France) too big to be bailed with existing rescue facilities, of which Greece is clearly not a part. A meeting between German Chancellor Angela Merkel and IMF Managing Director Christine Lagarde may prove to be more interesting. The German leader met with her French counterpart yesterday, where the two said they may complete new budget rules for the Euro area by the January 30 European Union summit, one month ahead of schedule.

On balance, while yesterday’s Merkel/Sarkozy meeting was not a game-changer in that traders learned little in terms concrete policy prescriptions for containing the debt crisis, the outcome likewise didn’t add anything substantially more negative into the equation. Expectations of a similar outcome to the Merkel/Lagarde outing combined with hopeful sentiment ahead of the fourth-quarter corporate earnings reporting season against a backdrop of improving US economic data appear to be fueling profit-taking on risk-aversion bets. This seems likely to continue weighing on the US Dollar over the near term after net speculative long positions on the go-to safe haven currency held near the highest in close to three months last week. Indeed, S&P 500 stock index futures are pushing firmly higher in late Asian trade, hinting the pick-up in risky assets is likely to continue.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Building Permits (MoM) (NOV)

-6.4%

3.3%

10.7%

23:00

NZD

QV House Prices (YoY) (DEC)

2.4%

-

1.7%

0:01

GBP

RICS House Price Balance (DEC)

-16.0%

-19.0%

-17.0%

0:01

GBP

BRC Sales Like-For-Like (YoY) (DEC)

2.2%

0.5%

-1.6%

0:30

AUD

Building Approvals (MoM) (NOV)

8.4%

6.0%

-10.0% (R+)

0:30

AUD

Building Approvals (YoY) (NOV)

-18.9%

-19.8%

-29.9% (R-)

3:00

CNY

Trade Balance ($) (DEC)

16.52B

8.80B

14.53B

3:00

CNY

Imports (YoY) (DEC)

11.8%

18.0%

22.1%

3:00

CNY

Exports (YoY) (DEC)

13.4%

13.4%

13.8%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:30

EUR

Bank of France Business Sentiment (DEC)

95

95

Low

7:45

EUR

French Manufacturing Production (YoY) (NOV)

-0.1%

2.6%

Low

7:45

EUR

French Industrial Production (MoM) (NOV)

-0.1%

0.0%

Low

7:45

EUR

French Industrial Production (YoY) (NOV)

-0.4%

1.8%

Low

7:45

EUR

French Manufacturing Production (MoM) (NOV)

-0.4%

0.0%

Low

10:00

EUR

Greece to Sell €1.25B in 182-day Bills

-

-

Medium

19:00

EUR

Germany’s Merkel, IMF’s Lagarde Meet in Berlin

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2692

1.2859

GBPUSD

1.5413

1.5515

--- 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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