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FOREX: US Dollar May Weaken vs Stocks-Linked Currencies, Euro to Lag

FOREX: US Dollar May Weaken vs Stocks-Linked Currencies, Euro to Lag

2012-03-01 07:05:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • Dollar Corrects Lower in Asia, Digesting Largest Rally in Two Weeks
  • US Economic Data to Boost Risk Appetite, Stocks-Linked Currencies
  • Euro to Stay on the Defensive as EU Leaders Begin Two-Day Summit

The US Dollar corrected narrowly lower against its leading counterparts in overnight trade as FX markets digested after the greenback issued the largest daily rally in two weeks over the preceding 24 hours. The surge came after Fed Chairman Ben Bernanke said the fall in US unemployment has been “more rapid” than the central bank expected in his semi-annual Congressional testimony, hinting a third round of asset purchases (so-called “QE3”) would not materialize. The downgrade in dovish rhetoric weighed on stock prices – boosting demand for the Dollar as a safe haven – while denting worries about further dilution of the US money supply.

Looking ahead, all eyes turn to the US economic calendar for confirmation of the previous day’s developments. The ISM Manufacturing report takes top billing, with expectations calling for the factory sector to expand at the fastest pace in 8 months in February. A rebound in January’s Personal Spending reading as well as continued growth in the Personal Income gauge are also in the cards. On balance, this is likely to prove supportive for risk appetite. Investors’ knee-jerk reaction was to sell risky assets as additional stimulus hopes faded, but that need not be a lasting response if the economy is truly able to stand on its own without further support from monetary policy. It would be reasonable to think that evidence precisely to that effect is likely to be greeted positively, underpinning at least a near-term recovery in stocks-linked currencies.

With that in mind, the Euro still appears likely to continue to lag most of the other majors as Greece-linked jitters resurface ahead with the beginning of the two-day EU leaders’ summit. The focus here will be on the mechanics of implementing the second Greek bailout agreement, with Athens scrambling to complete a long checklist of requirements by the meeting’s conclusion to secure the first tranche of funding.Although EU policymakers have allowed Greece to miss ample deadlines before, the downgrade in credit market risk following yesterday’s LTRO means their tolerance has been diminished. This opens the door for a testy outing, with the potential for a delay in the release of the first bit of bailout funding likely to keep the single currency on the defensive.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Terms of Trade Index (QoQ) (4Q)

-1.4%

-1.9%

-0.6% (R+)

22:30

AUD

AiG Performance of Manufacturing Index (FEB)

51.3

-

51.6

23:00

AUD

RPData-Rismark House Px Actual (JAN)

0.8%

-

-1.0% (R-)

23:50

JPY

Loans & Discounts Corp (YoY) (4Q)

0.0%

-

0.0%

23:50

JPY

Capital Spending excl Software (4Q)

4.9%

-7.4%

-11.0%

23:50

JPY

Capital Spending (4Q)

7.6%

-6.5%

-9.8%

00:30

AUD

Building Approvals (MoM) (JAN)

0.9%

2.0%

-0.8% (R+)

00:30

AUD

Building Approvals (YoY) (JAN)

-14.6%

-13.7%

-23.9% (R+)

00:30

AUD

Private Capital Expenditure (4Q)

-0.3%

3.8%

14.6% (R+)

1:00

CNY

PMI Manufacturing (FEB)

51.0

50.9

50.5

2:30

CNY

HSBC Manufacturing PMI (FEB)

49.6

-

48.8

5:00

JPY

Vehicle Sales (YoY) (FEB)

31.9%

-

40.7%

5:30

AUD

RBA Commodity Price Index (FEB)

98.1

-

99.4 (R-)

5:30

AUD

RBA Commodity Index SDR (YoY) (FEB)

3.5%

-

5.1% (R-)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French ILO Mainland Unemployment Rate (4Q)

9.6%

9.3%

Low

6:30

EUR

French ILO Mainland Unemployment Chg (4Q)

-

42K

Low

6:30

EUR

French ILO Unemployment Rate (4Q)

-

9.7%

Low

6:45

CHF

Gross Domestic Product (QoQ) (4Q)

-0.1%

0.2%

Medium

6:45

CHF

Gross Domestic Product (YoY) (4Q)

1.1%

1.3%

Medium

7:00

GBP

Nationwide House Prices (MoM) (FEB)

0.2%

-0.2%

Medium

7:00

GBP

Nationwide House Prices (YoY) (FEB)

0.3%

0.6%

Medium

8:30

CHF

PMI Manufacturing (FEB)

48.5

47.3

Medium

8:45

EUR

Italian PMI Manufacturing (FEB)

47.0

46.8

Low

8:50

EUR

French PMI Manufacturing (FEB F)

50.2

50.2

Low

8:55

EUR

German PMI Manufacturing (FEB F)

50.1

50.1

Low

9:00

EUR

Euro-Zone PMI Manufacturing (FEB)

49.0

49.0

Low

9:00

EUR

Italian Unemployment Rate s.a. (FEB F)

8.9%

8.9%

Low

9:30

GBP

PMI Manufacturing (FEB)

52.0

52.1

Medium

10:00

EUR

Euro-Zone CPI Estimate (YoY) (FEB)

2.6%

2.7%

High

10:00

EUR

Euro-Zone Unemployment Rate (JAN)

10.4%

10.4%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3264

1.3435

GBPUSD

1.5879

1.6030

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

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

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