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FOREX: All Eyes on FOMC to Set Tone for US Dollar, Risk Appetite

FOREX: All Eyes on FOMC to Set Tone for US Dollar, Risk Appetite

2012-03-13 07:58:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Outlook for US Dollar, Risk Appetite Hinges on FOMC Announcement
  • Euro Likely to be Highly Sensitive to Downside Surprise on German ZEW
  • Yen Briefly Gains as BOJ Keeps Major Policy Framework Unchanged

All eyes are on the Federal Reserve monetary policy announcement as global growth fears overtake the spotlight as Greece-linked issues fade out of focus. Although no meaningful changes in policy are expected, the language of the statement accompanying the announcement will be critical. If the rate-setting FOMC committee continues to project the neutral-leaning tone that has emerged in recent commentary and proved so market-moving after Bernanke’s Congressional testimony last month, the outcome is likely to prove negative for risk appetite (and by extension sentiment-sensitive currencies) while offering support to the US Dollar.

On balance, the most significant headwind facing global economic growth this year is the widely expected recession in the Eurozone. Investors are increasingly looking to the US – where growth is expected to accelerate this year – as the only significant offsetting factor. Within that context, a relatively positive tone from the Fed that trims hopes for a QE3 is likely to be perceived negatively for overall sentiment. Simply enough, a US economy primed with new stimulus is likely to be a more potent counterweigh to the slump in Europe, and vice versa.

On the European data front, the German ZEW survey of investor confidence is on tap. As we discussed in our weekly Euro forecast, expectations for a narrow improvement make sense as a reflection of reduced risk following the second ECB LTRO operation in late February. However, a downside surprise may go a long way toward demonstrating the marketsworries about the growth outlook for the currency bloc and may weigh heavily on the Euro as rate-cut expectations build.

The greenback sold off in overnight trade as Asian stocks advanced, sapping demand for the go-to safe haven currencies. The MSCI Asia Pacific regional benchmark index added 0.9 percent. The sentiment-linkedAustralian and New Zealand Dollars outperformed, although the Aussie lagged its Kiwi counterpart. A supportive set of New Zealand house and food price data coupled with disappointing home loans figures from Australia appear to have accounted for the disparity.

The Japanese Yen spiked briefly higher after the Bank of Japan opted to keep benchmark interest rates as well as the size of its asset-purchase fund and credit-loan program unchanged. The bank opted for smaller-scale measures including an extension on loan repayment through its growth program by 2 years to March 2014 and expansion of that program to ¥3.5 trillion, a new ¥500 billion growth program to finance small-scale business lending, and a ¥1 trillion US Dollar lending facility. Broader risk-based trends quickly overtook price action however and the Yen came back under pressure along with USD.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

REINZ House Price Index (FEB)

3280.5

3253.8

21:00

NZD

REINZ House Price Index (MoM) (FEB)

0.8%

-1.4%

21:00

NZD

REINZ House Sales (YoY) (FEB)

37.0%

25.2%

21:45

NZD

Food Prices (MoM) (FEB)

0.6%

-

0.0%

23:00

NZD

QV House Prices (YoY) (FEB)

2.9%

-

2.7%

23:50

JPY

Tertiary Industry Index (MoM) (JAN)

-1.7%

0.2%

1.8% (R+)

0:01

GBP

RICS House Price Balance (FEB)

-13%

-14%

-16%

0:30

AUD

Home Loans (JAN)

-1.2%

-0.6%

2.1% (R-)

0:30

AUD

Investment Lending (JAN)

-7.1%

-

7.5%

0:30

AUD

Value of Loans (MoM) (JAN)

0.1%

-

2.1% (R+)

0:30

AUD

NAB Business Confidence (FEB)

1

-

4

0:30

AUD

NAB Business Conditions (FEB)

3

-

2

5:07

JPY

Bank of Japan Rate Decision

0.10%

0.10%

0.10%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French CPI (MoM) (FEB)

0.4%

-0.4%

Low

6:30

EUR

French CPI (YoY) (FEB)

2.4%

2.3%

Low

6:30

EUR

French CPI - EU Harmonized (MoM) (FEB)

0.5%

-0.4%

Low

6:30

EUR

French CPI - EU Harmonized (YoY) (FEB)

2.6%

2.6%

Low

6:30

EUR

French CPI Index (FEB)

123.66

123.06

Low

7:45

EUR

French Current Account (€) (FEB)

-

-3.0B

Low

8:15

CHF

Producer & Import Prices (MoM) (FEB)

0.2%

0.0%

Low

8:15

CHF

Producer & Import Prices (YoY) (FEB)

-2.4%

-2.4%

Low

9:00

EUR

Italian CPI (YoY) (FEB F)

3.3%

3.3%

Low

9:00

EUR

Italian CPI (MoM) (FEB F)

0.4%

0.4%

Low

9:00

EUR

Italian CPI - EU Harmonized (YoY) (FEB F)

3.4%

3.4%

Low

9:00

EUR

Italian CPI - EU Harmonized (MoM) (FEB F)

0.2%

0.2%

Low

9:30

GBP

Visible Trade Balance (£/Mln ) (JAN)

-7900

-7111

Medium

9:30

GBP

Total Trade Balance (£/Mln ) (JAN)

-1900

-1109

Low

9:30

GBP

Trade Balance Non EU (£/Mln ) (JAN)

-4300

-3748

Low

9:30

GBP

DCLG UK House Prices (YoY) (JAN)

-

0.1%

Low

10:00

EUR

German ZEW Survey (Curr. Situation) (MAR)

41.5

40.3

Medium

10:00

EUR

German ZEW Survey (Econ Sentiment) (MAR)

10

5.4

High

10:00

EUR

Euro-Zone ZEW Survey (Econ Sentiment) (MAR)

-

-8.1

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3103

1.3183

GBPUSD

1.5597

1.5740

--- 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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