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Dollar Slumps on Fed Stimulus Hopes, Philadelphia Fed Gauge in Focus

Dollar Slumps on Fed Stimulus Hopes, Philadelphia Fed Gauge in Focus

Ilya Spivak, Head Strategist, APAC

Talking Points

  • US Dollar Broadly Sold as Traders Revel in Fed Stimulus Expectations
  • Spanish, French Bond Sale Results Eyed to Gauge Euro Funding Stress
  • Risk Appetite May Falter if Philadelphia Fed Reading Dents QE3 Bets

The US Dollar slumped against its top counterparts after Federal Reserve Chairman Ben Bernanke concluded two days of Congressional testimony, with markets seizing on comments reiterating the central bank is prepared to do more to stimulate growth if necessary. While this is not materially different from familiar rhetoric employed over recent months, the slightly softer tone of the Beige Book regional economic conditions survey seemed to be taken to mean a QE3 program was becoming more likely. Bernanke offered a run-down of alternative easing options including discount-window lending or a decrease in the interest rate paid on bank reserves and said the Fed is studying the likely permanence of the recent slowdown, which may have reinforced hopes for a dovish policy shift.

Looking ahead, a quiet European data calendar puts the focus on a pair of Spanish and French bond auctions. Madrid will sell a tranche of 2014, 2017 and 2019 debt. France will offer 2015, 2016 and 2017 paper as well as inflation-linked 2019, 2022 and 2040 bonds. Trades will look to average yield and bid-to-cover readings for a gauge of sovereign stress in the Euro area before tomorrow’s Eurogroup conference call, where policymakers are expected to pave the way for disbursement of the first €30 billion of Spain’s bank sector bailout by month-end.

The spotlight then shifts to the Philadelphia Fed gauge of US business confidence, where expectations point to a mild improvement in July after setting a 10-month low in June. An upside surprise along the lines of the Empire Manufacturing print earlier in the week may dent Fed stimulus bets amid evidence of stabilization early in the second quarter, boosting the greenback. S&P 500 stock index futures are pointing cautiously higher however, warning a risk-on tone may carry forward to spell trouble for the benchmark currency.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:00

NZD

ANZ NZ Job Ads (MoM) (JUN)

-1.4%

-

3.0% (R-)

1:30

AUD

NAB Business Confidence (2Q)

-2

-

-1

1:30

AUD

RBA FX Transaction (A$) (JUN)

1256

-

589

4:30

JPY

All Industry Activity Index (MoM) (MAY)

-0.3%

-0.3%

0.1%

5:00

JPY

Leading Index (MAY F)

95.2

-

95.9

5:00

JPY

Coincident Index (MAY F)

95.8

-

95.8

5:30

JPY

Nationwide Department Store Sales (YoY) (JUN)

-1.2%

-

-1.0%

5:30

JPY

Tokyo Department Store Sales (YoY) (JUN)

-0.1%

-

2.1%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

CHF

Trade Balance (CHF) (JUN)

-

2.52B

Low

6:00

CHF

Exports (MoM) (JUN)

-1.5%

1.8%

Low

6:00

CHF

Imports (MoM) (JUN)

-

-0.1%

Low

8:00

EUR

Italian Industrial Orders s.a. (MoM) (MAY)

1.7%

-1.9%

Low

8:00

EUR

Italian Industrial Orders n.s.a. (YoY) (MAY)

-

-12.3%

Low

8:00

EUR

Italian Industrial Sales s.a. (MoM) (MAY)

-

-0.5%

Low

8:00

EUR

Italian Industrial Sales n.s.a. (YoY) (MAY)

-

-4.1%

Low

8:00

EUR

Euro-Zone Current Account n.s.a. () (MAY)

-

1.6B

Low

8:00

EUR

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

-

4.6B

Low

8:30

GBP

Retail Sales ex Auto Fuel (MoM) (JUN)

0.4%

0.9%

Medium

8:30

GBP

Retail Sales ex Auto Fuel (YoY) (JUN)

2.6%

3.0%

Medium

8:30

GBP

Retail Sales w/Auto Fuel (YoY) (JUN)

2.3%

2.4%

Low

8:30

GBP

Retail Sales w/Auto Fuel (MoM) (JUN)

0.6%

1.4%

Low

8:30

EUR

Spain to Sell 2014-19 Bonds

-

-

Medium

9:00

EUR

France to Sell 2015-17 Notes, 2019-40 I/L Bonds

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2231

1.2321

GBPUSD

1.5600

1.5722

--- 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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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