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Forex: Dollar May Rise as Soft US Data Meets Fed QE Cutback Conviction

Forex: Dollar May Rise as Soft US Data Meets Fed QE Cutback Conviction

2014-02-25 06:27:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Revised German GDP Data Unlikely to Generate Lasting Euro Volatility
  • US Consumer Confidence, Comments from Fed’s Tarullo in the Spotlight
  • Global Slowdown Fears, Fed “Taper” Conviction May Sink Risk Trends

The final revision of fourth-quarter German GDP figures headlines the economic calendar in European hours. The early estimate showing the economy added 0.4 percent from the prior quarter is expected to be confirmed, marking a slight acceleration following a 0.3 percent gain in the three months through September 2013. While a pickup in the pace of economic growth is certainly not a bad thing per se, its ability to meaningfully boost the Euro is likely limited.

As we noted yesterday, the ECB’s narrow focus on price stability means broad economic activity readings are unlikely to have much impact on price action if they don’t necessarily translate into policy speculation. With that in mind, the revelation of a marginal pickup in the pace of German output growth may pass with little fanfarein as much as it would do little to countervail the slide in headline CPI readings and priced-in inflation expectations over recent months.

Later in the day, the spotlight shifts to February’s US Consumer Confidence report. Expectations point to a slight pullback after the index hit a five-month high in January. Meanwhile, Fed Governor Daniel Tarullo is scheduled to speak. Recent commentary from members of rate-setting FOMC committee has uniformly favored continued “tapering” of QE asset purchases, a view Mr. Tarullo is likely to support as well.

On balance, this stands to direct the spotlight at the apparent disparity between disappointing US news-flow and the Fed’s commitment to scaling back monetary stimulus. Last week, this toxic mixture seemed to meaningfully slow the rapid recovery in risk sentiment (as represented by the S&P 500) launched in the beginning of the month. More of the same may begin to increasingly weigh on global growth expectations and spark a renewed round of risk aversion, an outcome likely to benefit the US Dollar and the Japanese Yen against their top counterparts.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Corporate Service Price (YoY)

0.8%

1.2%

1.1%

2:00

NZD

RBNZ 2yr Inflation Expectation

2.33%

-

2.34%

2:00

CNY

Conference Board Leading Index (JAN)

1.2%

-

0.8%

5:00

JPY

Small Business Confidence

50.6

-

51.3

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

German GDP s.a. (QoQ) (4Q F)

0.4%

0.4%

Medium

7:00

EUR

German GDP w.d.a. (YoY) (4Q F)

1.4%

1.4%

Medium

7:00

EUR

German GDP n.s.a. (YoY) (4Q F)

1.3%

1.3%

Medium

7:00

EUR

German Capital Investment (4Q)

0.8%

1.6%

Low

7:00

EUR

German Construction Investment (4Q)

0.8%

2.4%

Low

7:00

EUR

German Domestic Demand (4Q)

0.2%

0.7%

Low

7:00

EUR

German Exports (4Q)

1.7%

0.1%

Low

7:00

EUR

German Imports (4Q)

1.3%

0.8%

Low

7:00

EUR

German Private Consumption (4Q)

-0.1%

0.1%

Low

7:00

EUR

German Government Spending (4Q)

0.2%

0.5%

Low

9:30

GBP

BBA Loans for House Purchase (JAN)

47150

46521

Low

10:00

EUR

EU Issues Winter Economic Forecasts

-

-

Medium

11:00

GBP

CBI Reported Sales (FEB)

15

14

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.3614

1.3676

1.3706

1.3738

1.3768

1.3800

1.3862

GBP/USD

1.6450

1.6545

1.6601

1.6640

1.6696

1.6735

1.6830

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

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