Forex: Euro Eyes German CPI, US Dollar May Rise on Confidence Data

Talking Points:

• Euro Selling to Resume if German CPI Figures are Revised Downward
• US Dollar May Rise if Upbeat UofM Data Scatters QE “Taper” Doubts
• Yen Gains, Aussie Declines as Asian Stocks Follow Wall Street Lower

The final revision of February’s German CPI data headlines the economic calendar in European trading hours. Expectations suggest flash estimates showing the headline year-on-year inflation rate at 1.2 percent – the lowest 10 months – will be confirmed. A revision downward is likely to compound downward pressure on the Euro after the currency produced the largest drop in a week yesterday in the wake of ominous comments from ECB President Mario Draghi. An upgrade would stand to produce the opposite effect, but follow-through may be limited: ECB standstill represents the established status-quo and data arguing for more of the same is unlikely to materially extend the Euro uptrend beyond erasing some of yesterday’s losses.

Later in the day, the spotlight will turn to the preliminary estimate of the March US Consumer Confidence reading from the University of Michigan. The gauge is expected to tick higher for the second consecutive month. A supportive outcome on the heels of Friday’s better-than-expected Nonfarm Payrolls number as well as yesterday’s upbeat Retail Sales report has scope to dampen speculation about a possible deceleration of the QE cutback cycle. That is likely to bode well for the US Dollar and may help force a breakout from the stubborn range in play since mid-February.

The Japanese Yen outperformed on the back of safe-haven demand while the sentiment-anchored Australian Dollar came under selling pressure in overnight trade as Asian stock exchanges followed Wall Street downward. The MSCI Asia Pacific regional benchmark equity index plunged 1.6 percent in a move the newswires attributed to China slowdown fears following this week’s disappointing news-flow as well as geopolitical jitters preceding the upcoming referendum to be held in Crimea this weekend that will decide if the semi-autonomous region will secede from the Ukraine and join Russia.

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

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