Forex: Euro May Not Find Support in Upbeat German ZEW Data

2014-01-21 08:27:00 Ilya Spivak, Head Strategist, APAC

Talking Points:

Euro May Not Find Support in Upbeat German ZEW Survey Data
Yen Drops as China Counters Shibor Spike, Boosting the Nikkei
US Dollar Soars as 10-year Treasury Yields Rebound Overnight

Germany’s ZEW Survey of analyst sentiment headlines the economic calendar in European hours. The forward-looking Expectations index is expected to rise to 64.0, an eight-year high. The improvement may not offer a meaningful boost to the Euro however.

The sharp rise in the ZEW metric over recent months has coincided with deterioration in regional economic data as well as a drop in the priced-in ECB outlook. Indeed, a Credit Suisse gauge measuring investors’ 12-month policy expectations is now hovering around an eight-month low. That suggests the improvement in sentiment may reflect hopes for further easing, a prospect that hardly bodes well for the single currency.

The Japanese Yen underperformed in overnight trade, sliding as much as 0.5 percent on average against its leading counterparts. The move reflected ebbing haven demand, tracking a rebound in the benchmark Nikkei 225 stock index. The newswires attributed the chipper mood to a pullback in Chinese borrowing costs. The baseline 7-day Shibor lending rate pulled back to 5.535 percent, down from a monthly high of 6.329 percent recorded yesterday, after the PBOC injected funds into the country’s largest commercial banks.

Meanwhile, the US Dollar pushed higher against its G10 FX peers on the back of yield-driven buying as the benchmark 10-year Treasury bond rate jumped 4bps to a three-day high. A singular catalyst behind the snapback in yields is not readily apparent. Corrective flows may be the culprit, particularly as liquidity returns following yesterday’s US holiday lull, after the 10-year rate hit a one-month low last week.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
21:45	NZD	Consumer Prices Index (QoQ) (4Q)	0.1%	-0.1%	0.9%
21:45	NZD	Consumer Prices Index (YoY) (4Q)	1.6%	1.5%	1.4%
5:00	JPY	Supermarket Sales (YoY) (DEC)	-0.8%	-	0.7%

European Session

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
8:00	CHF	Money Supply M3 (YoY) (DEC)	7.6% (A)	9.0%	Low
10:00	EUR	German ZEW Survey (Econ Sentiment) (JAN)	63.0	62.0	High
10:00	EUR	German ZEW Survey (Current Situation) (JAN)	35.0	32.4	High
10:00	EUR	Eurozone ZEW Survey (Econ Sentiment) (JAN)	-	68.3	Medium
11:00	GBP	CBI Trends Selling Prices (JAN)	12	11	Low
11:00	GBP	CBI Business Optimism (JAN)	25	24	Low
11:00	GBP	CBI Trends Total Orders (JAN)	10	12	Low