FOREX: Euro May Fall as Aussie Gains vs. Dollar on Strong ECB LTRO

2012-02-29 08:05:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Dollar, Yen Fall Amid Optimism Ahead of ECB LTRO Results
Strong LTRO Outlook May Weigh on Euro, Boost Aussie and Kiwi
Eurozone CPI, German Jobs Data Unlikely to be Market-Moving

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. This seems to bode well for the stocks-correlated Australian, Canadian and New Zealand Dollars. It may prove to hurt the Euro however in a similar way that money supply dilution courtesy of the Fed’s QE efforts weighed on the greenback. The final LTRO results are due at 10:15 GMT.

On the data front, German Unemployment figures enter the spotlight first. Expectations expect the economy to add 5,000 jobs in February, keeping the unemployment rate unchanged at 6.7 percent. Later in the day, the Eurozone CPI report is expected to show that the region-wide inflation rate held at 2.7 percent for second month in January.

On balance, neither outcome is likely to prove particularly market-moving. A steady improvement in German labor-market conditions since early 2009 has had no discernible impact on ECB policy expectations, eclipsed by weakness elsewhere in the region. As for the CPI reading, 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
21:45	NZD	Building Permits (MoM) (JAN)	8.3%	3.4%	2.6% (R+)
23:15	JPY	Markit/JMMA Manufacturing PMI (FEB)	50.5	-	50.7
23:50	JPY	Industrial Production (MoM) (JAN P)	2.0%	1.5%	3.8%
23:50	JPY	Industrial Production (YoY) (JAN P)	-1.2%	-1.6%	-4.3%
0:00	AUD	HIA New Home Sales (MoM) (JAN)	-7.3%	-	-4.9%
0:00	NZD	NBNZ Activity Outlook (FEB)	31.2	-	25.7
0:00	NZD	NBNZ Business Confidence (FEB)	28.0	-	16.9
0:01	GBP	GfK Consumer Confidence Survey (FEB)	-29	-27	-29
0:30	AUD	Construction Work Done (4Q)	-4.6%	-0.8%	11.7% (R-)
0:30	AUD	Private Sector Credit (MoM) (JAN)	0.2%	0.3%	0.3%
0:30	AUD	Private Sector Credit (YoY) (JAN)	3.5%	3.6%	3.5%
0:30	AUD	Retail Sales s.a. (MoM) (JAN)	0.3%	0.3%	-0.1%
2:00	NZD	Money Supply M3 (YoY) (JAN)	5.4%	-	6.0%
4:00	JPY	Vehicle Production (YoY) (JAN)	18.6%	-	13.4%
5:00	JPY	Construction Orders (YoY) (JAN)	24.6%	-	1.5%
5:00	JPY	Annualized Housing Starts (JAN)	0.822M	0.808M	0.783M
5:00	JPY	Housing Starts (YoY) (JAN)	-1.1%	-3.3%	-7.3%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
7:00	EUR	German Import Price Index (MoM) (JAN)	0.7%	0.3%	Low
7:00	EUR	German Import Price Index (YoY) (JAN)	3.0%	3.9%	Low
7:45	EUR	French Consumer Spending (MoM) (JAN)	0.2%	-0.7%	Low
7:45	EUR	French Consumer Spending (YoY) (JAN)	-2.0%	-3.1%	Low
8:00	CHF	KOF Swiss Leading Indicator (FEB)	-0.10	-0.17	Medium
8:55	EUR	German Unemployment Change (FEB)	-5K	-34K	High
8:55	EUR	German Unemployment Rate s.a. (FEB)	6.7%	6.7%	Medium
9:30	GBP	Net Consumer Credit (JAN)	0.2B	-0.4B	Medium
9:30	GBP	Net Lending Sec. on Dwellings (JAN)	0.8B	0.7B	Medium
9:30	GBP	Mortgage Approvals (JAN) (JAN)	54.0K	52.9K	Medium
9:30	GBP	M4 Money Supply (MoM) (JAN)	-	-1.4%	Low
9:30	GBP	M4 Money Supply (YoY) (JAN)	-	-2.5%	Low
9:30	GBP	M4 Ex IOFCs 3M Annualised (JAN)	-	-0.8%	Low
10:00	EUR	Euro-Zone CPI - Core (YoY) (JAN)	1.7%	1.6%	Low
10:00	EUR	Euro-Zone CPI (MoM) (JAN)	-0.8%	0.3%	Medium
10:00	EUR	Euro-Zone CPI (YoY) (JAN)	2.7%	2.7%	High
10:00	CHF	CPI - EU Harmonized (MoM) (JAN)	-0.3%	0.3%	Low
10:00	CHF	CPI - EU Harmonized (YoY) (JAN)	-0.7%	-0.4%	Low
10:15	EUR	ECB LTRO 3-Year Allotment Announcement	-	-	High