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FOREX: Dollar, Yen Rise on Haven Demand Amid Global Slowdown Fears

FOREX: Dollar, Yen Rise on Haven Demand Amid Global Slowdown Fears

Ilya Spivak, Head Strategist, APAC

Talking Points

  • US Dollar, Yen Rise on Haven Demand as Stocks Fall in Asian Trade
  • Chinese Exports Disappointment Tipped as Catalyst for Sentiment Slump
  • European, US Stock Index Futures Point to More Risk Aversion Ahead

The US Dollar and Japanese Yen outperformed overnight as stocks declined, stocking demand for the go-to safe haven currencies. The MSCI Asia Pacific regional benchmark index fell 0.3 percent, with the newswires chalking up the selloff to Chinese trade data released over the weekend. The East Asian giant reported that exports grew at an annual rate of 18.4 percent, disappointing economists’ expectations of a 31.1 percent increase. Given that China is the world’s largest exporter, the outcome was interpreted to reflect slowing global demand.

We are skeptical of assigning too much significance to the Chinese trade data set however. Although certainly not a positive outcome, it didn’t represent anything particularly new. Indeed, the year-on-year exports growth rate has been trending lower since May 2010. Rather, we suspect the flare-up of risk aversion reflects the gradual return of big-picture fundamentals as the driving force for price action, with the Chinese data acting as a trigger rather than a catalyst in its own right.

With Greek fiasco seemingly in the rearview mirror following last week’s successful PSI outing, investors likely reappraised the landscape only to be reminded of a Eurozone recession slated for this year expected to bring global GDP growth to the weakest since the Great Recession. Friday’s strong US jobs report offered some support to risky assets after it crossed the wires but seems to have lost its potency already as traders look ahead to Tuesday’s FOMC meeting. In this context, good US data is likely translating into downgraded QE3 expectations and weighs on hopes that a ramped-up North American recovery will make for a greater counterweigh to the slump in Europe.

Looking ahead, stock index futures tracking key European and US benchmark indexes are pointing firmly lower in late overnight trade, hinting sentiment is likely to remain on the defensive and suggesting haven currencies will continue to outperform against their major counterparts. The economic calendar is generally uneventful, leave little to stand in the way of established momentum (barring unscheduled developments, of course).

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Machine Orders (MoM) (JAN)

3.4%

2.3%

-7.1%

23:50

JPY

Machine Orders (YoY) (JAN)

5.7%

4.4%

6.3%

23:50

JPY

Domestic CGPI (MoM) (JAN)

0.2%

0.2%

-0.1%

23:50

JPY

Domestic CGPI (YoY) (JAN)

0.6%

0.6%

0.5%

0:01

GBP

Lloyds Employment Confidence (FEB)

-69

-

-73

5:00

JPY

Consumer Confidence (FEB)

39.5

40.5

40.0

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

German Wholesale Price Index (MoM)

1.0%

1.2%

Low

7:00

EUR

German Wholesale Price Index (YoY)

2.6%

3.0%

Low

9:00

EUR

Italian GDP s.a. and w.d.a. (QoQ)

-0.7%

-0.7%

Low

9:00

EUR

Italian GDP s.a. and w.d.a. (YoY)

-0.5%

-0.5%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2985

1.3235

GBPUSD

1.5613

1.5784

--- 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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