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FOREX: British Pound Vulnerable But Euro Recovery May Continue

FOREX: British Pound Vulnerable But Euro Recovery May Continue

2012-01-25 07:34:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

UK Gross Domestic Product figures headline the economic calendar in European hours, with expectations calling for output to shrink 0.1 percent, marking the first contraction in a year. Against this backdrop, the Bank of England will release minutes from its January 12 policy meeting, with traders keen to see if any members of the rate-setting MPC committee voted for an expansion of quantitative easing (QE). Policymakers voted in a £75 billion increase in asset purchases in October and unanimously opted to adopt a wait-and-see approach at the following two meetings. An increase in the probability of additional stimulus – whether from a worse than expected GDP print or the emergence of dissenting doves on the MPC – is likely to weigh on the British Pound.

Turning to the Euro area, the German IFO business confidence gauge is expected to rise for the third consecutive month in January, perpetuating the trend of improving regional data since the beginning of the month. While signs of strength in the currency bloc’s top economy are certainly nothing new and offer no meaningful counterbalance to the debt crisis headwinds still plaguing the region, the outcome may be enough to continue driving profit-taking on short Euro positions that has helped the single currency recover over the past week. Net-short speculative bets against the Euro hit another record high last week and traders are almost certainly looking to lighten up on exposure ahead of next week’s EU leaders’ summit.

The Australian Dollar outperformed in overnight trade, rising against all of its major counterparts, after core inflation accelerated more than expected in the fourth quarter. The RBA Trimmed Mean, a measure of the underlying trend in price growth, rose 2.6 percent from the previous year, topping expectations for a print at 2.4 percent. Traders seemingly took the outcome to mean the central would now be more reluctant to cut interest rates at its next policy meeting in early February, although priced-in expectations of a reduction remain elevated at 84 percent. The headline CPI inflation rate slowed to 3.1 percent.

The Japanese Yen slumped after the Ministry of Finance reported the island nation posted its first trade deficit in 31 years, showing a shortfall of ¥2.49 trillion. Exports fell 8 percent from a year before in December, marking the third consecutive decline and the largest in seven months. Previously, surplus capital inflows were often recycled into government bonds, providing the highly indebted government with a cheap and reliable funding source. The emergence of a deficit threatens this dynamic, hinting the government may find itself unable to finance its obligations, creating another flashpoint of sovereign stress to couple the fiasco in the Eurozone.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

Westpac Leading Index (MoM) (NOV)

-0.2%

-

0.1%

23:50

JPY

Merchandise Trade Balance Total (¥) (DEC)

-205.1B

-170.0B

-687.6B (R-)

23:50

JPY

Adj Merchandise Trade Balance (¥) (DEC)

-567.6B

-384.9B

-534.2B (R+)

23:50

JPY

Merchandise Trade Exports (YoY) (DEC)

-8.0

-7.4

-4.5

23:50

JPY

Merchandise Trade Imports (YoY) (DEC)

8.1

8.1

11.4

0:30

AUD

Consumer Price Index (QoQ) (4Q)

0.0%

0.2%

0.6%

0:30

AUD

Consumer Price Index (YoY) (4Q)

3.1%

3.3%

3.5%

0:30

AUD

RBA Weighted Median (QoQ) (4Q)

0.5%

0.5%

0.4% (R+)

0:30

AUD

RBA Weighted Median (YoY) (4Q)

2.6%

2.4%

2.7% (R+)

0:30

AUD

RBA Trimmed Mean (QoQ) (4Q)

0.6%

0.5%

0.4% (R+)

0:30

AUD

RBA Trimmed Mean (YoY) (4Q)

2.6%

2.4%

2.4% (R+)

0:00

AUD

DEWR Skilled Vacancies (MoM) (DEC)

-1.1%

-

-1.4% (R-)

2:00

NZD

Credit Card Spending s.a. (MoM) (DEC)

0.9%

-

-4.2% (R-)

2:00

NZD

Credit Card Spending (YoY) (DEC)

5.9%

-

3.0% (R-)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:00

EUR

German IFO - Business Climate (JAN)

107.6

107.2

Medium

9:00

EUR

German IFO - Current Assessment (JAN)

116.8

116.7

Medium

9:00

EUR

German IFO – Expectations (JAN)

99.0

98.4

Medium

9:30

GBP

Gross Domestic Product (YoY) (4Q A)

0.8%

0.5%

High

9:30

GBP

Gross Domestic Product (QoQ) (4Q A)

-0.1%

0.6%

High

9:30

GBP

Index of Services (MoM) (NOV)

0.4%

-0.7%

Low

9:30

GBP

Index of Services (3Mo3M) (NOV)

-0.1%

0.2%

Low

9:30

GBP

BBA Loans for House Purchase (DEC)

35000

34738

Low

9:30

GBP

Bank of England Minutes

-

-

High

10:15

EUR

Germany to Sell €3B in 30-Year Bonds

-

-

Medium

11:00

GBP

CBI Trends Selling Prices (JAN)

3

7

Low

11:00

GBP

CBI Trends Total Orders (JAN)

-23

-23

Low

11:00

GBP

CBI Business Optimism (JAN)

-

-30

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2972

1.3081

GBPUSD

1.5564

1.5657

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

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