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Forex: Euro May Look Past German IFO Survey, Focus on Inflation Data

Forex: Euro May Look Past German IFO Survey, Focus on Inflation Data

2014-02-24 05:52:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Soft German IFO Report Unlikely to Yield Lasting Follow-Through
  • Euro May Decline if January’s CPI Reading is Revised Downward
  • Japanese Yen Rose on Haven Flows as Stocks Sank in Asian Trade

Germany’s IFO Survey of business confidence headlines the economic in European trading hours. The headline Business Climate index is expected to tick gently lower to 110.5 in February compared with 110.6 in the prior month, snapping a three-month winning streak. Eurozone economic news-flow has increasingly disappointed relative to expectations since late January (according to data from Citigroup), which would be consistent with a pullback in sentiment. The ECB’s decision not to expand stimulus efforts at February’s policy meeting may have likewise soured survey-takers’ disposition.

A disappointing release may apply near-term downward pressure on the Euro, but lasting follow-through may be hard to come by. The ECB’s narrow mandate puts issues of price stability at the forefront, meaning signs of deteriorating business sentiment are unlikely to have much impact if they don’t necessarily translate into easing speculation. Drawing such conclusions would probably prove difficult considering the central bank’s refusal to act despite the slide in headline CPI readings and priced-in inflation expectations over recent months.

With that in mind, a downside revision to January’s final Eurozone CPI figure (if one is to materialize) is likely to produce a stronger response from the single currency than a dip in sentiment. Mario Draghi and company seem determined to wait for the completion of their Asset Quality Review (AQR) – due by November – before introducing policy changes. A drop below the four-month low of 0.7 percent on the year-on-year CPI growth rate may still compel speculation however.

The Japanese Yen outperformed in otherwise quiet overnight trade as Asian stocks declined, boosting demand for the safe-haven currency. The MSCI Asia Pacific regional benchmark equity index slid 0.5 percent. Newswires attributed the negative mood to a report from Shanghai Securities News saying several of China’s top lenders including Industrial Bank Co. are pulling back on offering credit to the property sector and related sectors.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

1:30

CNY

China January Property Prices

-

-

-

2:00

NZD

Credit Card Spending (MoM) (JAN)

1.0%

-

-0.7%

2:00

NZD

Credit Card Spending (YoY) (JAN)

9.2%

-

4.7%

European Session

GMT

CCY

EVENT

ACT

EXP

PREV

9:00

EUR

German IFO - Business Climate (FEB)

110.5

110.6

Medium

9:00

EUR

German IFO - Current Assessment (FEB)

112.8

112.4

Medium

9:00

EUR

German IFO - Expectations (FEB)

108.1

108.9

Medium

10:00

EUR

Euro-Zone CPI (MoM) (JAN)

-1.1%

0.3%

High

10:00

EUR

Euro-Zone CPI (YoY) (JAN F)

0.7%

0.7%

High

10:00

EUR

Euro-Zone CPI - Core (YoY) (JAN F)

0.8%

0.8%

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.3622

1.3679

1.3712

1.3736

1.3769

1.3793

1.3850

GBP/USD

1.6427

1.6539

1.6578

1.6651

1.6690

1.6763

1.6875

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

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