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Euro May Fall as Deepening Recession Drives ECB Easing Bets

Euro May Fall as Deepening Recession Drives ECB Easing Bets

Ilya Spivak, Head Strategist, APAC

The Euro may fall as the pace of economic contraction accelerates in the fourth quarter, driving expectations for ECB stimulus and eroding yield-based support.

Talking Points

  • Euro May Fall as Eurozone Recession Deepens in 4Q, Driving ECB Stimulus Bets
  • NZ Dollar Outperformed in Asia as Strong Data Birthed RBNZ Rate Hike Outlook

The roundup of preliminary fourth-quarter Eurozone GDP figures headlines the economic calendar in European hours. The regional composite reading is expected to show deepening malaise, with output down 0.4 percent in the three months through December 2012 compared with a 0.1 percent drop in the third quarter. Meanwhile, early repayments of 3-year LTRO funds have acted as de-facto tightening of monetary policy, shrinking the ECB balance sheet the smallest in a year.

Against this backdrop, deepening recession may drive bets on an offsetting round of monetary easing as slowing activity weighs on price growth and amplifies deflation risk. Such an outcome is likely to erode yield-linked support for the Euro and put downward pressure on the single currency. Needless to say, an upside surprise on the GDP front stands to produce the opposite effect.

The New Zealand Dollar outperformed in overnight trade, adding as much as 0.5 percent on average against its leading counterparts on the back of a supportive set of economic data releases. The Business NZ PMI gauge jumped to 55.2, showing manufacturing sector activity expanded at the fastest pace in eight months in January. Separately, the ANZ Consumer Confidence index rose 2.3 percent to hit the highest level since June 2010. Traders are now pricing in a 25bps RBNZ interest rate hike this year, marking the first time expectations have pointed toward tightening since April of last year (according to data from Credit Suisse).

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

21:30

NZD

Business NZ PMI (JAN)

55.2

-

50.4 (R+)

21:45

NZD

Food Prices (MoM) (JAN)

1.9%

-

-0.20%

23:50

JPY

GDP (QoQ) (4Q P)

-0.1%

0.1%

-1.0% (R-)

23:50

JPY

GDP Annualized (4Q P)

-0.4%

0.4%

-3.8% (R-)

23:50

JPY

Nominal GDP (QoQ) (4Q P)

-0.4%

0.0%

-1.1% (R-)

23:50

JPY

GDP Deflator (YoY) (4Q P)

-0.6%

-0.6%

-0.8%

0:00

NZD

ANZ Consumer Confidence Index (FEB)

121.0

-

118.3

0:00

NZD

ANZ Consumer Confidence (MoM) (FEB)

2.3%

-

3.1%

0:00

AUD

Consumer Inflation Expectation (FEB)

2.2%

-

2.0%

4:00

JPY

Tokyo Condominium Sales (YoY)

-5.4%

-

-3.0%

5:00

JPY

Bank of Japan Rate Decision

0.10%

0.10%

0.10%

Euro Session:

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French GDP (QoQ) (4Q P)

-0.2%

0.1%

Medium

6:30

EUR

French GDP (YoY) (4Q P)

-0.2%

0.0%

Medium

7:00

EUR

German GDP s.a. (QoQ) (4Q P)

-0.5%

0.2%

High

7:00

EUR

German GDP w.d.a. (YoY) (4Q P)

0.5%

0.9%

High

7:00

EUR

German GDP n.s.a. (YoY) (4Q P)

0.2%

0.4%

High

9:00

EUR

ECB Publishes Monthly Report

-

-

Medium

9:00

EUR

Italian GDP s.a. and w.d.a. (QoQ) (4Q P)

-0.6%

-0.2%

Medium

9:00

EUR

Italian GDP s.a. and w.d.a. (YoY) (4Q P)

-2.2%

-2.4%

Medium

10:00

EUR

Euro-Zone GDP s.a. (QoQ) (4Q A)

-0.4%

-0.1%

High

10:00

EUR

Euro-Zone GDP s.a. (YoY) (4Q A)

-0.7%

-0.6%

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3372

1.3506

GBPUSD

1.5481

1.5646

--- 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, please CLICK HERE

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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