Forex: US Dollar Momentum May Slow After CPI, Jobless Claims Data

2014-01-16 09:28:00 Ilya Spivak, Head Strategist, APAC

Talking Points:

Australian Dollar Flounders After Sharp Miss on Employment Data
Euro May Come Under Pressure if Inflation Data is Revised Lower
US Dollar Momentum May Slow as the Markets Digest Latest Gains

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The Australian Dollar underperformed in overnight trade, sliding as much as 1.34 percent against its US namesake, in the wake of December’s deeply disappointing Employment data. The figures showed the economy unexpectedly lost 22,600 jobs, a far cry of economists’ forecasts calling for a 10,000 increase. The result marked the worst print in nine months. The result weighed heavily on RBA policy expectations, with the 2-year bond yield sliding 8.2bps to produce the biggest one-day drop in three months.

The final revision of December’s Eurozone CPI data headlines the economic calendar in European hours. Flash estimates putting the headline year-on-year inflation rate at 0.8 percent and the core reading at a record-low 0.7 percent are expected to be confirmed. Outcomes in line with expectations are unlikely to yield much in terms of a lasting response from price action. The Euro may come under pressure in the event of a downside surprise however as traders ponder the possibility of ECB stimulus expansion. We remain short EURUSD.

Later in the day, the spotlight turns to US CPI figures. The year-on-year rate is expected to edge up to 1.5 percent, the highest in four months, adding to evidence suggesting that the Federal Reserve has continued room to “taper” QE asset purchases in the months ahead. Separately, the weekly set of Jobless Claims data is forecast to put initial applications for unemployment benefits at a two-month low. Needless to say, this too argues in favor of policy normalization.

While such outcomes seem to bode well for the US Dollar, their ability to continue driving the currency higher may be somewhat restrained in the context of the greenback’s recent performance. The currency is on pace to produce its most impressive winning streak in eleven weeks. Markets don’t move in straight lines and a period of digestion seems reasonable in the near term unless news-flow marks a notably supportive departure from the status quo.

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Asia Session:

GMT	CCY	EVENT	ACT	EXP	PREV
23:50	JPY	Tertiary Industry Index (MoM) (NOV)	0.6%	0.7%	-0.9%
23:50	JPY	Machine Orders (MoM) (NOV)	9.3%	1.1%	0.6%
23:50	JPY	Machine Orders (YoY) (NOV)	16.6%	11.7%	17.8%
23:50	JPY	Domestic CGPI (MoM) (DEC)	0.3%	0.3%	0.0%
23:50	JPY	Domestic CGPI (YoY) (DEC)	2.5%	2.6%	2.6%
0:01	GBP	RICS House Price Balance (DEC)	56.0%	60.0%	58.0%
0:30	AUD	RBA FX Transactions Total (A$) (DEC)	884M	-	444M
0:30	AUD	RBA FX Transactions Gov't (A$) (DEC)	-906M	-	-471M
0:30	AUD	RBA FX Transactions Other (A$) (DEC)	31M	-	38M
0:30	AUD	Employment Change (DEC)	-22.6K	10.0K	15.4K
0:30	AUD	Full Time Employment Change (DEC)	-31.6K	-	10.5K
0:30	AUD	Part Time Employment Change (DEC)	9.0K	-	4.9K
0:30	AUD	Unemployment Rate (DEC)	5.8%	5.8%	5.8%
0:30	AUD	Participation Rate (DEC)	64.6%	64.8%	64.8%
2:16	CNY	Foreign Direct Investment (YoY) (DEC)	3.3%	2.5%	2.4%

Euro Session:

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
7:00	EUR	EU 25 New Car Registrations (DEC)	13.3% (A)	1.2%	Low
7:00	EUR	German CPI (MoM) (DEC F)	0.4% (A)	0.4%	Medium
7:00	EUR	German CPI (YoY) (DEC F)	1.4% (A)	1.4%	Medium
7:00	EUR	German CPI - EU Harmonised (MoM) (DEC F)	0.5% (A)	0.5%	Low
7:00	EUR	German CPI - EU Harmonised (YoY) (DEC F)	1.2% (A)	1.2%	Low
9:00	EUR	ECB Publishes Monthly Report	-	-	Medium
10:00	EUR	Euro-Zone CPI (MoM) (DEC)	0.3%	-0.1%	High
10:00	EUR	Euro-Zone CPI (YoY) (DEC F)	0.8%	0.8%	High
10:00	EUR	Euro-Zone CPI - Core (YoY) (DEC F)	0.7%	0.7%	High