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FOREX - Dollar Vulnerable if Firm US Economic Data Buoys Risk Appetite

FOREX - Dollar Vulnerable if Firm US Economic Data Buoys Risk Appetite

2012-10-23 06:25:00
Ilya Spivak, Head Strategist, APAC
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The Dollar rose on haven flows in Asia but the move may be short-lived if another improvement on the US data front offers renewed support to risk appetite.

Talking Points

  • Forex Traders May Sell US Dollar if Firm Richmond Fed Print Buoys Risk Appetite
  • Cycle-Sensitive Names in Focus on Earnings Docket as Markets Refine Growth Bets
  • Dollar, Yen Rise on Haven Flows After Moody’s Downgrades Five Spanish Regions

Another quiet day on the European economic data front keeps the focus on US event riskas traders weigh the ability of a cautious pickup in North America to offset sluggish performance in Europe and Asia. The Richmond Fed manufacturing activity gauge is in the spotlight. Expectations call for an improvement in October, hinting the positive cues seen in September’s releases are carrying forward.

As we discussed in our weekly Dollar forecast, forex traders are likely to respond to US economic data in terms of its implications for market-wide sentiment trends. With that in mind, a firmer Richmond Fed print may boost risk appetite, weighing on greenback against most of its top counterparts (with the notable exception of the Yen) as haven-seeking capital flows dry up. Needless to say, a disappointing outcome is likely to produce the opposite dynamic.

Turning to the corporate earnings docket, cycle-sensitive names with a global footprint including United Parcel Service, EI du Pont de Nemours and Ryder System are in focus as markets continue to fine-tune their global growth outlook. Guidance from these companies is likewise likely to be interpreted in terms of their implications for the global recovery as investors fine-tune broad-based growth expectations. S&P 500 index futures are pointing lower in late Asian trade, hinting at a lean toward risk aversion heading into the European session.

The US Dollar and Japanese Yen rose against the majors in overnight trade as Asian stocks declined, boosting safe-haven demand. The MSCI Asia Pacific regional benchmark equity index fell 0.4 percent. The rout followed a Moody’s ratings downgrade of five Spanish regions. The Yen outperformed, adding as much as 0.3 percent on average, as prices digested the previous day’s aggressive selloff. The Japanese unit slumped 0.9 percent in the 24 hours through the closing bell on Wall Street, marking the sharpest one-day decline in seven weeks.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:00

AUD

Conference Board Leading Index (SEP)

-0.8%

-

0.0%

5:00

JPY

Small Business Confidence (SEP)

43.7

-

45.1

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

EUR

French Own-Company Production Outlook (OCT)

-

-6

Low

6:45

EUR

French Business Confidence Indicator (OCT)

90

90

Low

6:45

EUR

French Production Outlook Indicator (OCT)

-50

-52

Low

8:30

GBP

BBA Loans for House Purchase (SEP)

30840

30533

Medium

8:30

EUR

Spain to Sell 84- and 175-day Bills

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2980

1.3092

GBPUSD

1.5959

1.6048

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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