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Dollar at Risk if Soft US Data Underpins Fed QE Continuity Bets

Dollar at Risk if Soft US Data Underpins Fed QE Continuity Bets

2013-04-12 06:06:00
Ilya Spivak, Head Strategist, APAC
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The US Dollar may continue to decline if soft economic data underpins Fed QE continuity expectations. The Yen rose on risk aversion and BOJ rhetoric overnight.

Talking Points

  • Dollar May Fall as Soft US Data Underpins Fed QE Continuity Bets
  • Euro May Rise as Eurozone FinMin Meeting Reduces Instability Risk
  • Yen Gains on Risk Aversion, Kuroda Remarks in Quiet Asian Trade

The economic calendar is relatively uneventful in European trading hours, shifting investors’ focus to the US data docket. The March Retail Sales report is expected to show receipts stalled after rising 1.1 percent in February, yielding the weakest result in five months. Meanwhile, the Producer Price Index gauge for the same period is forecast to show wholesale inflation slowed over the same period while April’s preliminary Consumer Confidence reading from the University of Michigan ticks narrowly downward. On balance, a soft outing is likely to scatter expectations for a tapering of Fed QE efforts, weighing on the US Dollar amid renewed dilution fears (and vice versa).

Eurozone finance ministers are due to meet in Brussels. The sit-down is expected to see the adoption of a formal Memorandum of Understanding (MoU) on the bailout for Cyprus as well as produce an extension of maturities on rescue loans to Portugal and Ireland (with the wires hinting the two countries will get an additional seven years to repay their obligations). A slower pace of fiscal consolidation may also be approved for Spain. On balance, the outing seems likely to weigh against regional instability risk and boost the Euro. As such, we continue to hold long.

The Japanese Yen narrowly outperformed in otherwise lackluster overnight trade as Asian stocks declined, spurring a parallel unwinding of carry trades financed cheaply in terms of the go-to funding currency. The MSCI Asia Pacific index fell 0.2 percent in a move the newswires billed as corrective after the regional benchmark hit the highest level since late July 2011 yesterday. Mildly supportive comments from BOJ Governor Kuroda seemed to likewise help after the central bank chief reminded investors that monetary stimulus was aimed at ending deflation, not the exchange rate (though he acknowledged easing tends to weaken the currency).

Want to see economic data releases directly on your charts? Try this App.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Food Prices (MoM) (MAR)

-1.3%

-

-0.3%

23:50

JPY

Tertiary Industry Index (MoM) (FEB)

1.1%

0.7%

-1.5% (R-)

1:30

AUD

RBA Credit Card Balances (A$) (FEB)

50.0B

-

48.7B

1:30

AUD

RBA Credit Card Purchases (A$) (FEB)

20.2B

-

19.8B

3:00

NZD

Non Resident Bond Holdings (MAR)

68.3%

-

66.70%

Euro Session:

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German Wholesale Price Index (MoM) (MAR)

-

0.1%

Low

6:00

EUR

German Wholesale Price Index (YoY) (MAR)

-

1.4%

Low

8:30

GBP

Construction Output (MoM) (FEB)

-

-6.3%

Low

8:30

GBP

Construction Output (YoY) (FEB)

-

-7.9%

Low

9:00

EUR

Euro-Zone Industrial Production (MoM) (FEB)

0.2%

-0.4%

Medium

9:00

EUR

Euro-Zone Industrial Production (YoY) (FEB)

-2.5%

-1.3%

Medium

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.3049

1.3188

GBPUSD

1.5333

1.5465

--- 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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