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Dollar Sold as Risk Appetite Firms Before FOMC But Reversal Beckons

Dollar Sold as Risk Appetite Firms Before FOMC But Reversal Beckons

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Haven Currencies Fall as Risk Appetite Firms on FOMC Stimulus Hopes
  • US Dollar Likely to Recover as Fed Disappoints Hopes for Additional QE

The safe-haven US Dollar and Japanese Yen pushed lower and S&P 500 stock index futures rose overnight amid hopes the Federal Reserve will announce additional stimulus measures at the monthly meeting of the rate-setting FOMC committee. A disappointment seems likely however, with Ben Bernanke and company opting not to stray from familiar territory. Such an outcome is likely to weigh on risk appetite, boosting the greenback and punishing its stocks-linked counterparts.

Yields across the maturity spectrum are hovering near record lows having arrived there without new stimulus since QE2 ended in June 2011. It seems unreasonable to suggest that more asset purchases are needed to keep credit costs capped or that marginally cheaper funding will bring a significant number of would-be borrowers off the sidelines. That means the core benefit of a QE3 program would be psychological, marking it as a tool the Fed is likely to reserve to use in the event that the Eurozone debt crisis breeds a 2008-style credit crunch.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

BRC Shop Price Index (YoY) (JUL)

1.0%

-

1.1%

23:15

AUD

RPData - Rismark House PX Actual (JUL)

0.6%

-

1.0%

23:30

AUD

AiG Performance of Manufacturing Index (JUL)

40.3

-

47.2

1:00

CNY

Manufacturing PMI (JUL)

50.1

50.5

50.2

1:30

AUD

House Price Index (YoY) (2Q)

-2.1%

-4.2%

-3.5% (R-)

1:30

AUD

House Price Index (QoQ) (2Q)

0.5%

-0.5%

-0.1% (R-)

2:30

CNY

HSBC Manufacturing PMI (JUL)

49.3

-

48.2

5:00

JPY

Vehicle Sales (YoY) (JUL)

36.1%

-

40.9%

6:00

GBP

Nationwide House Prices n.s.a. (YoY) (JUL)

-2.6%

-1.9%

-1.5%

6:00

GBP

Nationwide House Prices s.a. (MoM) (JUL)

-0.7%

-0.2%

-0.6%

6:30

AUD

RBA Commodity Price Index (JUL)

95.8

-

98.1 (R+)

6:30

AUD

RBA Commodity Index SDR (YoY) (JUL)

-9.8%

-

-9.9% (R+)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:45

EUR

Italian PMI Manufacturing (JUL)

44.1

44.6

Low

7:50

EUR

French PMI Manufacturing (JUL F)

43.6

43.6

Low

7:55

EUR

German PMI Manufacturing (JUL F)

43.3

43.3

Medium

8:00

EUR

Euro-Zone PMI Manufacturing (JUL F)

44.1

44.1

Medium

8:30

GBP

PMI Manufacturing (JUL)

48.4

48.6

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2259

1.2340

GBPUSD

1.5574

1.5730

--- 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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