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FOREX: Dollar Outlook Hinges on Fed Comments as Oil Threatens Recovery

FOREX: Dollar Outlook Hinges on Fed Comments as Oil Threatens Recovery

2012-03-19 07:09:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Oil Prices in Focus as Traders Weigh US Recovery Against Eurozone Recession
  • Comments from NY Fed’s Dudley in Focus as Traders Look for Stimulus Clues

The US Dollar (ticker: USDollar) put in for a quiet start to the week, trading little-changed against its major counterparts. The New Zealand Dollar narrowly outperformed after February’s Performance of Services Index rose to 55.5, showing the non-manufacturing sector grew at the fastest pace in three months.

A quiet European data docket is likely to see traders focus their attention on comments from New York Federal Reserve President Bill Dudley. US economic growth has overtaken the spotlight as traders base their outlook for global output on the ability of the recovery in North America to offset a recession in the Eurozone.

As of last Friday, headwinds from rising oil prices have become the central item of consideration. US CPI produced the largest monthly gain in 10 months on the back of higher energy costs. Meanwhile, consumer confidence unexpectedly fell and industrial production stalled. Both outcomes likely owed to more expensive oil at least to some extent as crude’s ascent bleeds into the cost of gasoline and industrial petrochemicals.

Reasonably enough, fears that an oil spike will snuff out the US recovery again (as happened in late 2010 – early 2011) have probably begun to multiply anew. With that in mind, Dudley’s comments will be closely monitored as markets look to get a sense of how energy-price developments are factoring into the Fed’s policy calculus.

With this in mind, a variety of outcomes presents itself. A relatively dovish tone that rekindles hopes of stimulus should the recovery begin to falter is likely to send the US Dollar lower, with stocks-linked currencies like the Australian, Canadian and New Zealand Dollars and the Japanese Yen (where correlations with Treasury yields remain important) outperforming. Alternatively, a neutral outcome echoing the FOMC statement that acknowledges the run-up in oil prices but doesn’t hint at policymakers’ readiness to provide near-term support is likely to support the greenback.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

1:30

CNY

China Property Prices Survey (FEB)

-

-

-

21:00

NZD

Westpac NZ Consumer Confidence (1Q)

102.4

-

101.3

21:30

NZD

Performance of Services Index (FEB)

55.5

-

53.8 (R+)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:00

EUR

Euro-Zone Current Account s.a. (€) (JAN)

-

2.0B

Low

9:00

EUR

Italian Industrial Orders (MoM) (JAN)

-3.2%

5.5%

Low

9:00

EUR

Italian Industrial Orders (YoY) (JAN)

-2.9%

-4.3%

Low

9:00

EUR

Italian Industrial Sales (YoY) (JAN)

-

5.6%

Low

9:00

EUR

Italian Industrial Sales (MoM) (JAN)

-

3.4%

Low

9:00

EUR

Euro-Zone Current Account n.s.a. (€) (JAN)

-

16.3B

Low

10:00

EUR

Euro-Zone Construction Output (YoY) (JAN)

-

7.8%

Low

10:00

EUR

Euro-Zone Construction Output (MoM) (JAN)

-

0.3%

Low

12:35

USD

NY Fed Pres Dudley Speaks on Long Island

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3087

1.3225

GBPUSD

1.5738

1.5905

--- 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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