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FOREX: Euro, Aussie Dollar to Diverge on ECB Rate Decision Outcome

FOREX: Euro, Aussie Dollar to Diverge on ECB Rate Decision Outcome

2012-03-08 06:55:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • ECB to Keep Rates on Hold, All Eyes on Draghi Comments for Clues on Future Measures
  • Rising Pre-Commitments Hint Greek PSI to be Successful as Bond Swap Deadline Looms
  • US Dollar, Japanese Yen Sold as Risk Appetite Recovery Continues Across Asian Bourses
  • Kiwi Outperforms Despite Cautious RBNZ, Aussie Dollar Lags on Disappointing Jobs Data

Eurozone event risk dominates the spotlight. First, the European Central Bank is expected to hold interest rates unchanged at 1 percent at the monthly policy meeting. Indeed, additional accommodative measures now are probably too much to ask for considering we are only a week removed from a large 3-year LTRO operation. With that in mind, traders will be focused on ECB President Mario Draghi’s press conference following the announcement for clues on future efforts including further refinancing operations and/or overt rate cuts, as well as their likely triggers.

Importantly, the ECB announcement has both domestic and market-wide dimensions. Expectations of a 2012 recession in the Eurozone – the world’s largest economy when taken collectively – have been a key driver of broader risk aversion. With that in mind, a relatively dovish ECB outing may weigh heavily on the Euro – where prices continue to track benchmark German bond yields – while offering support to risk appetite and stocks-linked currencieson hopes that the region’s downturn can be made relatively less severe.

Later in the day, the Greek PSI deadline looms at 20:00 GMT. Private holders of Greek debt must decide by this time if they will participate in a bond swap that would see them exchange their paper for new longer-dated bonds while accepting a staggering loss of 70 percent on the initial investment. Athens set an initial goal of at least 75 percent participation, but also said that it would impose collective action clauses (CACs) to cajole hold-outs provided at least two-thirds (66 percent) of bond holders volunteer.

For their part, Eurozone officials have asked for between 95 and 100 percent participation to begin disbursing the €130 billion second Greek bailout package. If the first tranche of aid is not paid out, Greece can default as soon as this month. While a Greek default is no longer the threat it once was after ECB LTRO efforts effectively assured such an outcome would not create a market-wide credit squeeze, uncertainty about the final PSI result is keeping investors jittery nonetheless.

Early indications suggest PSI will be successful however. Banks and pension funds representing over 40 percent of would-be participants said they would take part yesterday, joining others that have already committed and stoking optimism that the 75 percent threshold will be overcome. Elsewhere, the Bank of England rate decision is likely to be a non-event as policymakers proceed with implementing the latest QE expansion for now, with traders having to wait for minutes from the sit-down due in two weeks for further guidance.

The US Dollar (ticker: USDollar) and Japanese Yen moved lower overnight as Asian stocks recovered, sapping demand for the go-to safe haven currency. The MSCI Asia Pacific regional benchmark equity index added 0.6 percent, correcting higher after three days of aggressive selling that brought the gauge to the lowest in five weeks. The New Zealand Dollar outperformed despite an initially negative reaction to dovish RBNZ rhetoric. The likewise sentiment-linkedAustralian Dollar was not far behind but lagged a bit courtesy of a disappointing jobs report.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

20:00

NZD

Reserve Bank of New Zealand Rate Decision

2.50%

2.50%

2.50%

21:45

NZD

Manufacturing Activity (4Q)

1.2%

-

0.2% (R+)

21:45

NZD

Manufacturing Activity Volume (QoQ) (4Q)

1.3%

-

-1.7% (R-)

23:50

JPY

Gross Domestic Product (QoQ) (4Q F)

-0.2%

-0.2%

-0.6%

23:50

JPY

Gross Domestic Product Annualized (4Q F)

-0.7%

-0.6%

-2.3%

23:50

JPY

GDP Deflator (YoY) (4Q F)

-1.8%

-1.6%

-1.6%

23:50

JPY

Nominal GDP (QoQ) (4Q F)

-0.5%

-0.3%

-0.8%

23:50

JPY

Bank Lending Banks ex-Trust (FEB)

0.8%

-

0.7%

23:50

JPY

Bank Lending incl Trusts (YoY) (FEB)

0.6%

-

0.6%

23:50

JPY

Current Account Total (¥) (JAN)

-437.3B

-320.0B

303.5B

23:50

JPY

Adjusted Current Account Total (¥) (JAN)

115.6B

322.3B

776.2B (R+)

23:50

JPY

Current Account Balance (YoY) (JAN)

-179.9%

-151.3%

-74.7%

23:50

JPY

Trade Balance - BOP Basis (¥) (JAN)

-1381.6B

-

-145.8B

0:30

AUD

Employment Change (FEB)

-15.4K

5.0K

46.2K (R-)

0:30

AUD

Unemployment Rate (FEB)

5.2%

5.2%

5.1%

0:30

AUD

Full Time Employment Change (FEB)

0.0K

-

15.3K (R+)

0:30

AUD

Part Time Employment Change (FEB)

-15.4K

-

30.9K (R-)

0:30

AUD

Participation Rate (FEB)

65.2%

65.3%

65.3%

2:00

JPY

Tokyo Avg Office Vacancies (%) (FEB)

9.15

-

9.23

4:30

JPY

Bankruptcies (YoY) (FEB)

5.2%

-

-5.4%

5:00

JPY

Eco Watchers Survey: Current (FEB)

45.9

46.0

44.1

5:00

JPY

Eco Watchers Survey: Outlook (FEB)

50.1

-

47.1

6:00

JPY

Machine Tool Orders (YoY) (FEB P)

-8.6%

-

-6.9%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French Non-Farm Payrolls (QoQ) (1Q F)

-0.2%

-0.2%

Low

7:30

EUR

French BoF Business Sentiment (FEB)

96

96

Low

7:45

EUR

French Trade Balance (JAN)

-5150M

-4993M

Low

8:15

CHF

Consumer Price Index (MoM) (FEB)

0.2%

-0.4%

Medium

8:15

CHF

Consumer Price Index (YoY) (FEB)

-0.9%

-0.8%

Medium

8:15

CHF

CPI – EU Harmonised (MoM) (FEB)

0.1%

-0.7%

Medium

8:15

CHF

CPI – EU Harmonised (YoY) (FEB)

-0.7%

-0.9%

Medium

11:00

EUR

German Industrial Production s.a. (MoM) (JAN)

1.1%

-2.9%

Low

11:00

EUR

German Industrial Production (YoY) (JAN)

1.1%

0.9%

Medium

12:00

GBP

Bank of England Rate Decision

0.50%

0.50%

High

12:00

GBP

BOE Asset Purchase Target

325B

325B

High

12:45

EUR

European Central Bank Rate Decision

1.00%

1.00%

High

13:30

EUR

ECB Pres Draghi Holds Press Conference

-

-

High

20:00

EUR

Greek PSI Agreement Deadline

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3109

1.3272

GBPUSD

1.5707

1.5794

--- 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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