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FOREX: Dollar Poised to Extend Gains as Risk Aversion Returns

FOREX: Dollar Poised to Extend Gains as Risk Aversion Returns

Ilya Spivak, Head Strategist, APAC

Talking Points

  • US Dollar Higher in Asia as FOMC Announcement Weighs on QE3 Bets
  • S&P 500 Futures Point to Risk Aversion, Hinting Dollar to Extend Gains
  • UK Jobless Claims Unlikely to be Major Market-Mover for British Pound

The US Dollar (ticker: USDollar) continued to push higher overnight after adding 0.23 percent against its leading counterparts over the preceding 24 hours after the Federal Reserve policy announcement scattered QE3 expectations further, easing concerns policymakers would further dilute the benchmark currency. S&P 500 stock index futures are pointing materially lower in late Asian trade, hinting risk aversion is likely to propel the greenback higher still in the hours ahead.

The US currency broke with its long-stranding inverse relationship with stock prices yesterday. Indeed, the S&P 500 surged higher alongside the Dollar in the aftermath of the FOMC announcement, a response that we did not expect. The break-down of risk on/off trading dynamics seems like a temporary development however, with the impact of FOMC on equities obscured by an unexpected announcement of an increase in dividend payments and a $15 billion share buyback from JPMorgan. This delayed downward pressure on risky assets from reduced QE3 expectations, but is unlikely to have dismissed it altogether. With that in mind, a catch-up move lower in sentiment and linked assets appears probable.

On the economic data front, UK Jobless Claims figures are on tap. Expectations call for a relatively modest 5k increase in applications for unemployment benefits. The three-month Unemployment Rate is forecast to remain unchanged at 8.4 percent. A print in line with expectations will probably neither advance nor detract from the case for additional Bank of England stimulus, leaving the British Pound at the mercy of broader risk trends.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

Westpac Consumer Confidence (MAR)

-5.0%

-

4.2%

23:30

AUD

Westpac Consumer Confidence Index (MAR)

96.1

-

101.1

23:50

JPY

BSI Large All Industry (QoQ) (1Q)

-2.7

-

-2.5

23:50

JPY

BSI Large Manufacturing (QoQ) (1Q)

-7.3

-

-6.1

0:30

AUD

Dwelling Starts (4Q)

-6.9%

-3.0%

-5.8% (R+)

2:00

NZD

Non Resident Bond Holdings (FEB)

60.3%

-

59.3%

4:30

JPY

Industrial Production (MoM) (JAN F)

1.9%

-

2.0%

4:30

JPY

Industrial Production (YoY) (JAN F)

3.4%

-

-1.2%

4:30

JPY

Capacity Utilization (MoM) (JAN F)

-1.3%

-

3.1%

6:00

JPY

Machine Tool Orders (YoY) (JAN F)

-8.6%

-

-8.6%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:30

GBP

Claimant Count Rate (FEB)

5.0%

5.0%

Medium

9:30

GBP

Jobless Claims Change (FEB)

5.0K

6.9K

High

9:30

GBP

ILO Unemployment Rate (3M) (JAN)

8.4%

8.4%

Medium

9:30

GBP

Average Weekly Earnings (3M/YoY) (JAN)

1.9%

2.0%

Low

9:30

GBP

Weekly Earnings ex Bonus (3M/YoY) (JAN)

1.9%

2.0%

Low

10:00

EUR

Euro-Zone CPI (MoM) (FEB)

0.5%

-0.8%

Medium

10:00

EUR

Euro-Zone CPI (YoY) (FEB)

2.7%

2.7%

Medium

10:00

EUR

Euro-Zone CPI - Core (YoY) (FEB)

1.6%

1.5%

Low

10:00

EUR

Euro-Zone Industrial Production (MoM) (JAN)

0.6%

-1.2%

Medium

10:00

EUR

Euro-Zone Industrial Production (YoY) (JAN)

-0.7%

-2.0%

Medium

10:00

CHF

Credit Suisse ZEW Survey (Expectations) (MAR)

-

-21.2

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2970

1.3166

GBPUSD

1.5564

1.5761

--- 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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