Dollar, Yen Look to German and US Data to Fuel Further Gains

Talking Points

• Dollar, Yen Rise Amid Fears of Franco-German Rift on Banking Union
• Benign German IFO Outcome May Boost Euro, Broader Risk Appetite
• Dallas Fed Manufacturing Survey in Focus on US Economic Calendar

The US Dollar and the Japanese Yen pushed broadly higher overnight as Asian stocks declined, boosting demand for the go-to haven currencies. Newswires chalked up the sour mood to emerging signs of discord between French and German leaders on the “banking union” component of the Eurozone’s debt crisis management efforts. Asked about the time frame for the setup at a joint press conference over the weekend, French President Hollande said “the earlier, the better” while Germany’s Merkel countered that the arrangement “has to be thorough, the quality has to be good and then we’ll see how long it takes.”

Germany’s IFO Survey of business confidence headlines the calendar in European hours. Expectations call for a slight pick-up on the headline Business Climate gauge, snapping four consecutive months of losses. A benign result has scope to boost risk appetite given the Eurozone’s centrality in driving the global economic slowdown, capping gains for the greenback and the Japanese unit against their top counterparts (including the Euro). Needless to say, a soft reading may conversely amplify risk aversion further.

Later in the session, the spotlight turns to the US docket and September’s Dallas Fed Manufacturing Activity gauge. The report marks the first in a series of regional factory-sector surveys on tap this week and will help shape a timely outlook on where growth trends in the world’s top economy are pointing in the third quarter. Establishing the extent to which US recovery can offset recession in Europe and a slowdown in Asia is formative for risk appetite. To that affect, a strong print may prove supportive for sentiment (and thereby negative for the US Dollar), 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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