FOREX: Dollar, Yen Sold as Risk Appetite Firms on ECB LTRO Hopes

2012-02-28 09:05:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Dollar, Yen Sell Off as Risk Appetite Firms Ahead of ECB LTRO Outcome
Euro Likely to Look Past German CPI Data as Inflation Rate Holds Steady

The US Dollar and Japanese Yen declined against most of their leading counterparts in overnight as Asian stocks rose, sapping demand for the go-to safe haven currencies. Risk appetite is on the upswing as traders look ahead to the outcome of the second 3-year ECB long-term refinancing operation (LTRO). Median forecasts call for a take-up of €470 billion this time around after a €489 billion outing in December. As discussed in detail in our weekly fundamental trends monitor, such an outcome is likely to downgrade the threat of a Eurozone-driven credit crunch in the eyes of investors, boosting market-wide sentiment. The final LTRO results are due to be announced tomorrow.

S&P 500 stock index futures are trading higher in early European trade, hinting the risk-on mood is likely to continue to boost risk-linked currencies against the greenback and the Yen. On the data front, the focus is on February’s preliminary German Consumer Price Index reading. Expectations suggest the annual inflation rate will remain unchanged at 2.1 percent for the third consecutive month, a likely neutral outcome for the Euro. Indeed, priced-in expectations already call for a flat ECB outlook in the coming 12 months, so confirmation of the status quo is unlikely to mean much for the single currency particularly as LTRO preoccupies traders’ attention.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
23:50	JPY	Retail Trade s.a. (MoM) (JAN)	4.1%	1.0%	0.3%
23:50	JPY	Retail Trade (YoY) (JAN)	1.9%	-0.1%	2.5%
23:50	JPY	Large Retailers' Sales (JAN)	-1.0%	-1.1%	-0.3% (R-)
5:00	JPY	Small Business Confidence (FEB)	45.3	-	45.7

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
7:00	EUR	German GfK Consumer Confidence Survey (MAR)	6.0	5.9	Medium
7:00	CHF	UBS Consumption Indicator (JAN)	-	0.92	Medium
10:00	EUR	Euro-Zone Business Climate Indicator (FEB)	-0.15	-0.21	Low
10:00	EUR	Euro-Zone Consumer Confidence (FEB F)	-20.2	-20.2	Medium
10:00	EUR	Euro-Zone Economic Confidence (FEB)	94	93.4	Low
10:00	EUR	Euro-Zone Industrial Confidence (FEB)	-7	-7.2	Low
10:00	EUR	Euro-Zone Services Confidence (FEB)	-0.6	-0.6	Low
11:00	GBP	CBI Reported Sales (FEB)	-12	-22	Low
13:00	EUR	German CPI (MoM) (FEB P)	0.5%	-0.4%	Medium
13:00	EUR	German CPI (YoY) (FEB P)	2.1%	2.1%	High
13:00	EUR	German CPI - EU Harmonised (MoM) (FEB P)	0.5%	-0.5%	Medium
13:00	EUR	German CPI - EU Harmonised (YoY) (FEB P)	2.2%	2.3%	High