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Dollar Gains on Euro Crisis Fears, May Extend Rebound as QE3 Bets Fade

Dollar Gains on Euro Crisis Fears, May Extend Rebound as QE3 Bets Fade

Ilya Spivak, Head Strategist, APAC

Talking Points

  • US Dollar Rebounds as Eurozone Crisis Fears Stoke Haven Demand
  • Euro May Fall as EU Officials Dither on Greece, Spain Rescue Policy
  • Firm US Durable Goods Data May Boost USD on Fading QE3 Hopes

The US Dollar pushed broadly higher in overnight trade as Asian stocks declined, rebooting demand for the go-to haven currency. The MSCI Asia Pacific regional benchmark equity gauge slid 1.2 percent as Eurozone debt crisis fears re-emerged ahead of a high-profile meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras in Berlin today. Samaras is attempting to concessions on the country’s bailout conditionality, including two-year extension on the deadline to complete the required budget adjustments.

The Greek Prime Minister received a cold response from visiting Eurogroup leader Jean-Claude Junker earlier in the week. Junker said Athens was faced with “the last chance” to get its finances on track and secure the release of further aid payments, though he opted out of definitively ruling out the possibility of a deadline extension. Overnight comments from Volker Kauder, caucus leader for Angela Merkel’s CDU party, were less reserved. Kauder said giving Greece more time would be equivalent to giving it more money, which Germany can’t do. He ominously added that a Greek exit from the Eurozone wouldn’t be a problem for the currency union at large.

For her part, Merkel said it was important to await the status report from inspectors representing the so-called “troika” of the EU, the ECB and the IMF due to arrive in Athens in September before making firm decisions about a deadline extension. While a similar tone following her meeting with Samaras would defuse escalation by pushing out the day of reckoning further into the future, such an outcome may still be seen as negative for the Euro and wider risk appetite. Investors appear to be increasingly frustrated by the lack of directional cues – whether positive or negative – from Eurozone officials and markets may be approaching a juncture where price action forces policy once again. Further dithering on a formal bailout request from Spanish Prime Minister Mariano Rajoy at a press conference following a cabinet meeting later today may reinforce this dynamic.

On the economic data front, the second revision of second-quarter UK GDP figures is expected to see a slight upward revision showing output shrank 0.5 percent compared with the three months through March. Initial reports showed a 0.7 percent contraction. July’s US Durable Goods Orders data comes into the spotlight later in the session. Forecasts expect an increase of 2.5 percent versus the prior month, marking the best outcome in six monthly. This may pour a bit of cold water on reemerging Fed stimulus bets and weigh on risk appetite while boosting the greenback as traders are reminded of the cautious improvement in US economic data over recent weeks.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Trade Balance (NZ$) (JUL)

15M

-41M

287M (R-)

22:45

NZD

Trade Balance YTD (NZ$) (JUL)

-853M

-891M

-765M (R-)

22:45

NZD

Exports (NZ$) (JUL)

4.00B

3.70B

4.18B (R-)

22:45

NZD

Imports (NZ$) (JUL)

3.99B

3.76B

3.89B (R+)

23:30

AUD

Stevens Testifies to House Economic Committee

-

-

-

23:50

JPY

Corporate Service Price (YoY) (JUL)

-0.2%

-0.2%

-0.4% (R-)

0:00

AUD

Conference Board Leading Index (JUN)

0.2%

-

0.3% (R-)

1:35

CNY

MNI Flash Business Sentiment Indicator (AUG)

46.76

-

49.73

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:30

GBP

Gross Domestic Product (QoQ) (2Q P)

-0.5%

-0.7%

High

8:30

GBP

Gross Domestic Product (YoY) (2Q P)

-0.6%

-0.8%

High

8:30

GBP

Private Consumption (2Q P)

-0.2%

-0.1%

Low

8:30

GBP

Government Spending (2Q P)

0.3%

1.9%

Low

8:30

GBP

Gross Fixed Capital Formation (2Q P)

-0.6%

1.9%

Low

8:30

GBP

Exports (2Q P)

-0.9%

-1.7%

Low

8:30

GBP

Imports (2Q P)

0.4%

-0.3%

Low

8:30

GBP

Total Business Investment (QoQ) (2Q P)

0.3%

1.9%

Low

8:30

GBP

Total Business Investment (YoY) (2Q P)

3.6%

14.8%

Low

8:30

GBP

Index of Services (MoM) (JUN)

-1.8%

0.9%

Low

8:30

GBP

Index of Services (3Mo3M) (JUN)

0.0%

0.5%

Low

9:45

EUR

Greece’s Samaras, Germany’s Merkel Meet in Berlin

-

-

Medium

11:30

EUR

Spanish Cabinet Meeting, News Conference

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2493

1.2595

GBPUSD

1.5769

1.5896

--- 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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