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Forex Analysis: Euro Finds Yield Support, US GDP and FOMC on Tap

Forex Analysis: Euro Finds Yield Support, US GDP and FOMC on Tap

Ilya Spivak, Head Strategist, APAC

The Euro soared as banks began repaying LTRO funding, draining liquidity and boosting yields. US GDP data and the FOMC rate decision may hurt risk appetite.

Talking Points

Yet another relatively quiet day on the European economic data front shifts attention to a busy US docket. Fourth-quarter GDP figures are expected to show that output added 1.2 percent compared with a 3.1 percent increase in the three months through September 2012. This is swiftly followed by the FOMC rate decision.

Ben Bernanke and company seem overwhelmingly unlikely to introduce anything new into the policy mix after December’s major reshuffling. The rhetoric of the policy statement may take a stronger dovish tone however if the central bank sees a need to talk down the idea that the “Evans rule” will bring an earlier end to stimulus measures. Speculation about such an outcome began following the release of minutes from December’s sit-down.

On balance, this makes for a potentially vulnerable environment asslowing growth and a dour statement from the Fed may begin to pour cold water on buoyant sentiment trends. This is all the more ominous considering it sets the stage for the upcoming fight over “sequester” spending cuts in Washington DC and shapes perceptions of resilience in the face of further austerity.

Tellingly, the risk-linked Australian, Canadian and New Zealand Dollars are underperforming heading into the event risk. The Kiwi is getting hit particularly hard as traders await the policy announcement from the RBNZ later in the day. No major changes are expected but worries about the emergence of a more bellicose posture on the exchange rate seem to be in the air.

The Euro likewise put in a strong showing as banks began early repayment of €137.2 billion of the 3-year LTRO cash they received from the ECB in late 2011 and early 2012. The move amounts to a draining of market liquidity and markets responded by pushing front-end yields higher, seemingly offering beta-driven support to the single currency. The Japanese Yen dropped as Asian stocks advanced, sapping demand for the regional safe-haven.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Building Permits (MoM) (DEC)

9.4%

6.0%

-5.2% (R+)

23:50

JPY

Retail Trade (YoY) (DEC)

0.4%

0.3%

1.2% (R-)

23:50

JPY

Retail Trade s.a. (MoM) (DEC)

0.1%

0.4%

-0.1% (R-)

23:50

JPY

Large Retailers' Sales (DEC)

0.0%

-1.0%

0.9%

0:00

AUD

DEWR Internet Skilled Vacancies (MoM) (DEC)

-2.8%

-3.4% (R+)

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

CHF

UBS Consumption Indicator (DEC)

1.34 (A)

1.23

Low

8:00

EUR

Spain GDP - Constant SA (YoY) (4Q)

-1.8% (A)

-1.6%

Medium

8:00

EUR

Spain GDP (Constant SA) (QoQ) (4Q)

-0.7% (A)

-0.3%

Medium

8:00

CHF

KOF Swiss Leading Indicator (JAN)

1.05 (A)

1.29

Medium

9:30

GBP

Net Consumer Credit (DEC)

0.6B (A)

0.1B

Low

9:30

GBP

Net Lending Sec. on Dwellings (DEC)

1.0B (A)

0.0B (R+)

Low

9:30

GBP

Mortgage Approvals (DEC)

55.8K (A)

54.0K

Medium

9:30

GBP

M4 Money Supply (YoY) (DEC)

-1.0% (A)

-2.9% (R-)

Low

9:30

GBP

M4 Money Supply (MoM) (DEC)

0.7% (A)

-0.2%

Low

9:30

GBP

M4 Ex IOFCs 3M Annualised (DEC)

3.8% (A)

4.8% (R+)

Low

10:00

EUR

Euro-Zone Economic Confidence (JAN)

89.2 (A)

87.8 (R+)

Low

10:00

EUR

Euro-Zone Business Climate Indicator (JAN)

-1.09 (A)

-1.11 (R+)

Low

10:00

EUR

Euro-Zone Industrial Confidence (JAN)

-13.9 (A)

-14.2 (R+)

Low

10:00

EUR

Euro-Zone Consumer Confidence (JAN F)

-23.9 (A)

-23.9

Medium

10:00

EUR

Euro-Zone Services Confidence (JAN)

-8.8 (A)

-9.8

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3438

1.3634

GBPUSD

1.5708

1.5828

--- 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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