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FOREX: US Dollar to Retrace Lower as Risk Appetite Recovers

FOREX: US Dollar to Retrace Lower as Risk Appetite Recovers

Ilya Spivak, Head Strategist, APAC

Talking Points

  • US Dollar Pulls Back Overnight, Further Weakness Likely Ahead
  • Australian Dollar Underperforms on Disappointing GDP Outcome
  • German Factory Orders Slowdown Unlikely to be Market-Moving

The US Dollar (ticker: USDollar) traded broadly lower overnight, weighed down by profit-taking after the currency surged on the back of risk aversion over the preceding to hit a seven-week high and snap the medium-term down trend in place since December. The benchmark currency slid as much as 0.24 percent on average against the majors.

The Australian Dollar lagged after fourth-quarter GDP figures missed expectations, showing output added just 0.4 percent compared with forecasts calling for a 0.8 percent increase. The outcome stocked RBA interest rate cut expectations, with investors’ priced-in likelihood of a decrease at the next policy meeting in April jumping to 40 percent from just 5 percent yesterday (according to data compiled by Credit Suisse).

Looking ahead, a broad-based correction higher across the spectrum of risky assets appears likely to continue driving the greenback lower as markets digest yesterday’s blood-letting. S&P 500 stock index futures – a proxy gauge for overall sentiment trends – are firmly higher in late Asian trade, reinforcing the likelihood of a risk-on tone in European hours. Importantly, we see the move lower as a pullback in the scope of a larger upward reversal.

The chipper mood may be dented as German Factory Orders figures cross the wires however. Expectations call for an increase of 0.6 percent in January, marking a slowdown from the 1.7 percent gain in the previous month. With that in mind, orders have been trending lower since mid-2009, so a mere reinforcement of the status quo may not be enough to derail corrective momentum barring a large deviation from expectations. On the other hand, an upside surprise appears likely to have a disproportionately positive effect in the current environment.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

AUD

AiG Performance of Construction Index (FEB)

35.6

-

39.8

23:50

JPY

Official Reserve Assets ($) (FEB)

1302.9B

-

1306.7B

0:01

GBP

BRC Shop Price Index (YoY) (FEB)

1.2%

-

1.4%

0:30

AUD

Gross Domestic Product (QoQ) (4Q)

0.4%

0.7%

0.8% (R-)

0:30

AUD

Gross Domestic Product (YoY) (4Q)

2.3%

2.3%

2.6% (R+)

5:00

JPY

Coincident Index (JAN P)

93.1

93.4

93.6

5:00

JPY

Leading Index (JAN P)

94.9

95.0

93.8 (R-)

5:30

AUD

Foreign Reserves (A$) (FEB)

49.1B

-

46.8B

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

CHF

Unemployment Rate s.a. (FEB)

3.1%

3.1%

Low

6:45

CHF

Unemployment Rate (FEB)

3.4%

3.4%

Low

8:00

CHF

Foreign Currency Reserves (FEB)

-

227.2B

Low

11:00

EUR

German Factory Orders s.a. (MoM) (JAN)

0.6%

1.7%

Medium

11:00

EUR

German Factory Orders n.s.a. (YoY) (JAN)

-1.7%

0.0%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3068

1.0000

GBPUSD

1.5648

1.5834

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya 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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