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Forex: US Dollar May Rise as Fed-Speak Overshadows Retail Sales Data

Forex: US Dollar May Rise as Fed-Speak Overshadows Retail Sales Data

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • British Pound May Not Sustain Gains if CPI Data Offers an Upside Surprise
  • US Dollar Looking to Fed-Speak for a Lifeline, Plosser and Fisher in Focus
  • Yen, Aussie Sold as US Yields Recover Amid Churning Fed Policy Speculation

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December’s UK CPI data takes top billing on the economic calendar in European hours. Expectations call for the headline year-on-year inflation rate to remain at 2.1 percent, unchanged from the prior month. Manufacturing- and service-sector PMI readings for the same period pointed to accelerating price growth however, leaving the door open for an upside surprise. Such a result may offer a near-term boost to the British Pound, but recent chatter about the possibility that the Bank of England will revise its forwardguidance framework to ward off tightening speculation may swiftly cap upward momentum.

Later in the day, the spotlight returns to the US as markets ponder the fate of the Federal Reserve’s QE “tapering” process in the aftermath of December’s dismal employment data. Atlanta Fed President Dennis Lockhart struck a hawkish tone yesterday but his remarks failed to prevent a breakdown of the US Dollar. The “Fed-speak” docket heats up today as Charles Plosser and Richard Fisher – presidents of the Philadelphia and Dallas Fed branches – take to the wires. Unlike Lockhart, both Plosser and Fisher are voting members of the rate-setting FOMC committee in 2014. That means their remarks may carry added weight and offer the greenback a lifeline if they too voice support for reducing asset purchases.

On the data front, traders will be watching December’s US Retail Sales report. Economists’ forecasts point to a 0.1 percent increase from November, marking the softest outcome in three months. While a slowdown in retail activity during a holiday-heavy month of the year doesn’t bode well, the release may not generate lasting US Dollar selling in and of itself. Many of the arguments made to explain December’s miss on payrolls – especially those of the weather-related variety – can be applied to a drop in receipts growth as well. With that in mind, a slowdown won’t necessarily offer anything new into the conversation and may be overshadowed by the aforementioned commentary from Fed officials if they opt for a hawkish lean.

The Australian Dollar and the Japanese Yen underperformed in overnight trade, sliding as much as 0.4 and 0.7 percent respectively against their leading counterparts. The move appears to be corrective after both currencies scored strong gains yesterday. Not surprisingly, the moves tracked a rebound in US 10-year Treasury yields as the two rates-sensitive currencies continued to reflect gyrations in the markets’ Fed policy outlook.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

NZIER Business Opinion Survey (4Q)

52

-

38

21:45

NZD

NZ Card Spending - Retail (MoM) (DEC)

0.6%

1.0%

0.7%

21:45

NZD

NZ Card Spending - Total (MoM) (DEC)

1.0%

-

0.3%

21:45

NZD

QV House Prices (YoY) (DEC)

10.0%

-

9.2%

23:50

JPY

Bank Lending incl. Trusts (YoY) (DEC)

2.3%

-

2.2%

23:50

JPY

Bank Lending Banks ex-Trust (DEC)

2.6%

-

2.4%

23:50

JPY

Current Account Total (¥) (NOV)

-592.8B

-368.9B

-127.9B

23:50

JPY

Adjusted Current Account Total (¥) (NOV)

-46.6B

27.9B

-59.3B

23:50

JPY

Current Account Balance (YoY) (NOV)

230.1%

74.2%

-130.4%

23:50

JPY

Trade Balance - BOP Basis (¥) (NOV)

-1254.3B

-1236.4B

-1091.9B

4:30

JPY

Bankruptcies (YoY) (DEC)

-15.73%

-

-10.58%

5:00

JPY

Eco Watchers Survey: Current (DEC)

55.7

54.0

53.5

5:00

JPY

Eco Watchers Survey: Outlook (DEC)

54.7

-

54.8

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

EUR

German Wholesale Price Index (MoM)

0.4% (A)

-0.2%

Low

7:00

EUR

German Wholesale Price Index (YoY)

-1.8% (A)

-2.2%

Low

9:30

GBP

PPI Input n.s.a. (MoM) (DEC)

-0.2%

-0.7%

Low

9:30

GBP

PPI Input n.s.a. (YoY) (DEC)

-1.5%

-1.0%

Low

9:30

GBP

PPI Output n.s.a. (MoM) (DEC)

0.0%

-0.2%

Medium

9:30

GBP

PPI Output n.s.a. (YoY) (DEC)

1.0%

0.8%

Medium

9:30

GBP

PPI Output Core n.s.a. (MoM) (DEC)

0.0%

-0.1%

Low

9:30

GBP

PPI Output Core n.s.a. (YoY) (DEC)

0.9%

0.7%

Low

9:30

GBP

CPI (MoM) (DEC)

0.5%

0.1%

High

9:30

GBP

CPI (YoY) (DEC)

2.1%

2.1%

High

9:30

GBP

Core CPI (YoY) (DEC)

1.8%

1.8%

High

9:30

GBP

RPI (DEC)

253.6

252.1

Low

9:30

GBP

RPI (MoM) (DEC)

0.5%

0.1%

Low

9:30

GBP

RPI (YoY) (DEC)

2.7%

2.6%

Low

9:30

GBP

RPI ex Mort Int. Payments (YoY) (DEC)

2.8%

2.7%

Low

9:30

GBP

ONS House Prices (YoY) (NOV) (DEC)

5.9%

5.5%

Low

10:00

EUR

Eurozone Industrial Production (MoM) (NOV)

1.4%

-1.1%

Medium

10:00

EUR

Eurozone Industrial Production (YoY) (NOV)

1.8%

0.2%

Medium

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3571

1.3618

1.3645

1.3665

1.3692

1.3712

1.3759

GBPUSD

1.6091

1.6252

1.6317

1.6413

1.6478

1.6574

1.6735

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

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