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FOREX: Yen Outperforms as Traders Look Past US GDP to EU Summit

FOREX: Yen Outperforms as Traders Look Past US GDP to EU Summit

2012-01-27 08:19:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • Traders Likely to Look Past US GDP Data, Focus on EU Leaders’ Summit
  • Japanese Yen Topping Dollar as Safe Haven as US Inflation Outlook Firms
  • US, European Stock Index Futures Point to Risk Aversion into Week-End

The Japanese Yen outperformed in overnight trade as risk aversion crept back into currency markets, with the likely source of anxiety being the EU leaders’ summit coming up on Monday. While the next major bit of fundamental event risk is the fourth-quarter US Gross Domestic Product report, its overall implications for price action appear limited beyond the very short term.

Indeed, the willingness of the Federal Reserve to lurch further to the dovish side of the spectrum even after six consecutive months of steady improvement in US economic data suggests a pickup in growth – with output expected to expand at an annualized 3 percent to mark the best performance since the second quarter of 2010 – is unlikely to mean much in terms of shaping the policy outlook.

Improving growth is broadly supportive for risk appetite in that an accelerating US recovery helps offset downturns expected this year in Europe and Asia, but most of that story has likely been priced into exchange rates already. With that in mind, it is the EU summit rather than the GDP report that stands as the next major inflection point for global financial markets.

On that front, traders cannot be faulted for a jittery disposition. A failure to sort out the details of the now almost-mythical “fiscal compact” meant to institutionalize budget discipline in the Euro area or secure agreement on private-sector involvement (PSI) in the second Greek bailout – where the government and banks have locked horns over the coupon rate on new longer-dated bonds to be swapped in for outstanding ones – threatens to unleash panic amid fears of a disorderly sovereign default that unleashes another global meltdown along the lines what happened in 2008.

European and US stock index futures are broadly lower in late Asian hours, hinting the sour mood is likely to carry on through into the week-end. Interestingly, traders seem to have substituted the Yen for the US Dollar as their go-to safe haven for the time being, which likely reflects suspicions that the Fed’s dovish leanings against a backdrop of firming growth point to a pickup in inflation, working against the greenback’s appeal as a refuge on store-of-value grounds. Indeed, priced-in expectations point to continued deflation in Japan while bets on US price growth have jumped considerably in the wake of the FOMC outcome.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Trade Balance (NZ$) (DEC)

338M

-50M

-307M (R+)

21:45

NZD

Exports (NZ$) (DEC)

4.32B

4.11B

3.91B

21:45

NZD

Imports (NZ$) (DEC)

3.98B

4.10B

4.22B

21:45

NZD

Trade Balance YTD (NZ$) (DEC)

1113M

723M

555M (R+)

23:30

JPY

Tokyo CPI (YoY) (JAN)

-0.3%

-0.4%

-0.4%

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (JAN)

-0.4%

-0.3%

-0.3%

23:30

JPY

Tokyo CPI Ex Food, Energy (JAN)

-1.1%

-

-1.0%

23:30

JPY

National CPI (YoY) (DEC)

-0.2%

-0.2%

-0.5%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (DEC)

-0.1%

-0.1%

-0.2%

23:30

JPY

National CPI Ex Food, Energy (DEC)

-1.1%

-1.1%

-1.1%

23:50

JPY

Retail Trade (YoY) (DEC)

2.5%

2.1%

-2.2% (R-)

23:50

JPY

Retail Trade s.a. (MoM) (DEC)

0.3%

0.4%

-2.0% (R-)

23:50

JPY

Large Retailers' Sales (DEC)

-0.4%

-0.6%

-2.5%

23:50

JPY

BOJ Minutes of Dec 20-21 Board Meeting

-

-

-

1:35

CNY

MNI Business Condition Survey (JAN)

55.95

-

52.78

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

German Import Price Index (MoM) (DEC)

0.3%

0.4%

Low

7:00

EUR

German Import Price Index (YoY) (DEC)

3.8%

6.0%

Low

8:00

CHF

KOF Swiss Leading Indicator (JAN)

-0.10

0.01

Medium

9:00

EUR

Euro-Zone M3 s.a. (3M) (DEC)

2.3%

2.5%

Low

9:00

EUR

Euro-Zone M3 s.a. (YoY) (DEC)

2.1%

2.0%

Low

10:00

EUR

Italy to Sell €11B in 182-331 day Bills

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3034

1.3165

GBPUSD

1.5649

1.5733

--- 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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