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Forex Analysis: Euro May Fall as Soft German CPI Drives ECB Easing Bets

Forex Analysis: Euro May Fall as Soft German CPI Drives ECB Easing Bets

2012-11-28 08:45:00
Ilya Spivak, Head Strategist, APAC
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The Euro may face further selling pressure as German inflation slows to the weakest in four months, driving ECB monetary easing expectations.

Talking Points

  • Japanese Yen Gains as Asian Stocks Drop on Greece Deal Rethink, “Fiscal Cliff” Jitters
  • Euro May See Selling Pressure as German CPI Drop Drives ECB Easing Expectations
  • US Home Sales, Beige Book May Buoy Dollar vs. Yen, Drive Weakness vs. Comm Bloc

The Japanese Yen outperformed in overnight trade as a drop in Asian stocks drove demand for the regional safe-haven currency. The MSCI Asia Pacific benchmark index lost 0.5 percent, with the newswires citing ominous comments from the OECD warning a global recession could follow a failure to avert the US fiscal cliff as the catalyst.

A reconsideration of yesterday’s Eurogroup summit outcome likely added to negative cues. A knee-jerk reaction to the headline claiming a deal on Greece had been reached buoyed risk appetite yesterday but sentiment was quick to unravel as markets digested the details of the arrangement, as expected. Indeed, the Euro lagged its top counterparts in Asian hours.

Looking ahead, the preliminary set of November’s German CPI figures headlines the calendar. Expectations call for the headline inflation rate to drop to 1.9 percent, the lowest in four months. The outcome may weigh on the Euro as forex traders take softening price pressure to mean the ECB has added room for further easing amid signs of deepening recessionin the wake of deteriorating economic data (particularly the recent run of region-wide PMI figures).

Later in the day, the spotlight turns to the Federal Reserve Beige Book survey of regional economic conditions. Separately, US New Home Sales are expected to hit 390,000 in October, marking the highest reading since April 2010. Signs of firming recovery in the US may prove supportive yields and boost the US Dollar against the Japanese Yen while weighing on the greenback against the growth-geared commodity bloc currencies (Australian, Canadian and New Zealand Dollars).

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:30

AUD

Construction Work Done (3Q)

1.7%

2.0%

0.9%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:00

EUR

Euro-Zone M3 s.a. (3M) (OCT)

2.8%

3.0%

Low

9:00

EUR

Euro Zone M3 s.a. (YoY) (OCT)

2.8%

2.7%

Low

10:00

EUR

Italy to Sell 7.5B in 6-mo Bills

-

-

Low

12:00

USD

MBA Mortgage Applications (NOV 23)

-

-2.2%

Low

13:00

EUR

German CPI (MoM) (NOV P)

-0.1%

0.0%

High

13:00

EUR

German CPI (YoY) (NOV P)

1.9%

2.0%

High

13:00

EUR

German CPI - EU Harmonised (MoM) (NOV P)

-0.1%

0.1%

Medium

13:00

EUR

German CPI - EU Harmonised (YoY) (NOV P)

2.0%

2.1%

Medium

Critical Levels **

CCY

SUPPORT

RESISTANCE

EURUSD

1.2861

1.2994

GBPUSD

1.5981

1.6048

** Intraday support and resistance levels are derived from Pivot Points

--- 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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