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Forex: Japanese Yen May Outperform on Another Soft Set of US Data

Forex: Japanese Yen May Outperform on Another Soft Set of US Data

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Euro Unlikely to Find Lasting Strength in Upbeat PMI Data Roundup
  • Markets May Look Past US ADP Report, Focus on Services ISM Print
  • Japanese Yen to Advance on Haven Demand if US Data Disappoints

The final round of January’s revised Eurozone PMI readings headlines the economic calendar in European hours. The region-wise composite index is expected to confirm flash estimates showing manufacturing- and service-sector activity growth accelerated to the fastest pace since June 2011. The seemingly rosy outcome is unlikely to offer much of a boost to the Euro however.

Improving growth dynamics have failed to remedy anemic inflation trends, fueling speculation that the ECB will have to expand stimulus efforts to prevent the possible emergence of a deflationary threat. Indeed, Markit Economics’ Chris Williamson wrote that “deflationary forces are clearly a concern in many [Eurozone] countries” in the preliminary January PMI report published two weeks ago.

Later in the day, the spotlight turns to US economic data as traders continue to build out expectations for Friday’s pivotal Nonfarm Payrolls print. January’s ADP Employment reading and the ISM Non-Manufacturing Composite gauge are due to cross the wires. The former is expected to show private-sector hiring slowed from the prior month while the latter is tipped to reflect a pickup in the pace of service-sector expansion.Scheduled commentary from the Charles Plosser and Dennis Lockhart – Presidents of the Philadelphia and Atlanta branches of the Federal Reserve – will help establish context within which to interpret news-flow.

The ADP result deviated wildly from the NFP reading in December, showing the economy added 238,000 jobs whereas official figures pointed to an increase of just 74,000. This means that traders may look skeptically upon whatever outcome ends up crossing the wires. The ISM print may command a bit more attention, but hopes for a supportive result may be disappointed.

The manufacturing component of the ISM survey registered on the soft side as we suspected earlier this week; US news-flow has increasingly softened relative to consensus forecasts over the past two weeks, opening the door for a similar result this time around. That may drive risk aversion amid fear of what a slowdown in US activity could mean for global performance at large, particularly after the Fed policymakers Jeffrey Lacker and Charles Evans talked down the likelihood of slowing the central bank’s QE “tapering” cycle yesterday. The safe-haven Japanese Yen seems likely to broadly outperform in such a scenario.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Unemployment Rate (4Q)

6.0%

6.0%

6.2%

21:45

NZD

Average Hourly Earnings (QoQ) (4Q)

0.3%

0.1%

1.6%

21:45

NZD

Private Wages ex Overtime (QoQ) (4Q)

0.6%

0.5%

0.4%

21:45

NZD

Labor Cost Private Sector (QoQ) (4Q)

0.6%

0.5%

0.4%

21:45

NZD

Employment Change (QoQ) (4Q)

1.1%

0.6%

1.2%

21:45

NZD

Employment Change (YoY) (4Q)

3.0%

2.4%

2.4%

21:45

NZD

Participation Rate (QoQ) (4Q)

68.9%

68.6%

68.6%

22:30

AUD

AiG Performance of Service Index (JAN)

49.3

-

46.1

0:01

GBP

BRC Shop Price Index (YoY) (JAN)

-1.0%

-0.7%

-0.8%

1:30

JPY

Labor Cash Earnings (YoY) (DEC)

0.8%

-

0.6%

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

CHF

UBS Real Estate Bubble Index (4Q)

1.23 (A)

1.20

Low

8:45

EUR

Italian PMI Services (JAN)

48.9

47.9

Low

8:50

EUR

French PMI Services (JAN F)

48.6

48.6

Low

8:55

EUR

German PMI Services (JAN F)

53.6

53.6

Medium

9:00

EUR

Euro-Zone PMI Services (JAN F)

51.9

51.9

Medium

9:00

EUR

Euro-Zone PMI Composite (JAN F)

53.2

53.2

Medium

9:30

GBP

PMI Services (JAN)

59.0

58.8

Medium

9:30

GBP

Official Reserves (Changes) (JAN)

-

-$536M

Low

10:00

EUR

Euro-Zone Retail Sales (MoM) (DEC)

-0.7%

1.4%

Medium

10:00

EUR

Euro-Zone Retail Sales (YoY) (DEC)

1.5%

1.6%

Medium

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.3427

1.3472

1.3495

1.3517

1.3540

1.3562

1.3607

GBP/USD

1.6133

1.6221

1.6273

1.6309

1.6361

1.6397

1.6485

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

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