Dollar Gains on Japan Export Slump, Greece and FOMC Now in Focus

Talking Points

• US Dollar Rose Overnight as Japanese Export Slump Drives Haven Demand
• Eurogroup’s Junker to Visit Greece to Discuss Budget Goal Extension Request
• Minutes from Augusts’ FOMC Meeting in Focus as QE3 Speculation Lingers

The US Dollar narrowly recovered against its leading counterparts in overnight trade as Asian stocks declined, boosting demand for the go-to haven currency. The MSCI Asia Pacific regional benchmark index slid 0.7 percent, with newswires citing disappointing Japanese Trade Balance figures as the catalyst.

The report showed exports fell at an annual pace of 8.1 percent in July, marking the largest drop in six months. Japan is the world’s fourth-largest exporter and markets appear to have interpreted the sharp decline in overseas sales in terms of its implications for slowing global demand. The sentiment-sensitiveAustralian and New Zealand Dollars underperformed.

The spotlight now turns to Greece, where Eurogroup leader (and Luxembourg Prime Minister) Jean-Claude Junker is expected to arrive for a discussion of a possible relaxation of the country’s bailout terms. Specifically, the discussion is expected to center on a request for a two-year extension of the deadline to complete Greece’s fiscal adjustment program. Signs pointing to the possibility that Greece may get a reprieve would likely support risk appetite along with the Euro and stocks-linked currencies.

Later in the day, the focus shifts to the Federal Reserve as the central bank releases minutes from Augusts’ meeting of the FOMC policy-setting committee. Investors will pick apart the text for clues about the possibility of a QE3 stimulus program to be unveiled in the coming weeks, either at the Jackson Hole symposium on August 31 or policymakers’ next sit-down in mid-September.A dovish lean from Fed officials is likely to boost sentiment at the expense of the greenback, and vice versa.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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