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Euro May Fall vs. US Dollar as Data Renews Disparate Policy Bets

Euro May Fall vs. US Dollar as Data Renews Disparate Policy Bets

2016-02-12 06:32:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points:

  • Euro may fall as soft GDP data fuels ECB stimulus bets, boosts risk appetite
  • US Dollar to see outsized gains if Retail Sales, UofM data tops expectations
  • NZ Dollar drops, Yen gains as risk-off Wall St. mood carries into Asia trade

Eurozone GDP figures are in focus in European trading hours. The region-wide reading is expected to show the year-on-year growth rate slowed to 1.5 percent in the fourth quarter after hitting a four-year high at 1.6 percent in the three months through September.

News-flow from the currency bloc has increasingly disappointed relative to consensus forecasts since the beginning of the year. This has been accompanied by a sharp dovish swing in priced-in ECB monetary policy expectations (as reflected in overnight index swaps).

Underperformance on the data front hints that analysts’ models are overstating the economy’s vigor, opening the door for a downside surprise on the GDP front. If previous patterns hold, such an outcome is likely to amplify bets on ECB stimulus expansion when officials convene for a policy meeting in March.

A soft result may help bring monetary policy divergence trends back to the forefront in the minds of investors, punishing the Euro against its major counterparts. The prospect of a top-up to global accommodation efforts might also boost overall sentiment, compounding pressure on the anti-risk single currency.

Later in the day, the spotlight turns to US economic news. January’s Retail Sales report is expected to show receipts grew at a rate of 2 percent year-on-year, marking a slight downtick from the 2.2 percent print recorded in the prior month. Meanwhile, February’s University of Michigan consumer confidence index is forecast to register unchanged from January.

US data flow has deteriorated relative to expectations since mid-November 2015. On the other hand, leading survey data from Markit Economics shows the consumer goods sector to have outperformed since the beginning of the year, hinting at the possibility of better-than-expected results.

On balance, soft readings seem unlikely to trigger a significant response from the US Dollar considering traders have already priced out further Fed rate hikes out of their 2016 outlook. Alternatively, upbeat results that clash with the priced-in baseline outlook may trigger portfolio readjustment and push the greenback upward.

The New Zealand Dollar underperformed in overnight trade as risk aversion carried over from Wall Street and onto Asian bourses, weighing on the sentiment-linked currency. The Japanese Yen continued to edge higher amid unwinding of carry trades financed in terms of the go-to funding unit.

Losing money trading the FX market? This might be why.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Food Prices (MoM) (JAN)

2.0%

-

-0.8%

22:30

AUD

RBA’s Stevens Testifies to Parliament Committee

-

-

-

00:30

AUD

Home Loans (MoM) (DEC)

2.6%

3.0%

1.9%

00:30

AUD

Investment Lending (DEC)

0.6%

-

1.0%

00:30

AUD

Owner-Occupier Loan Value (MoM) (DEC)

0.9%

-

2.2%

00:30

AUD

Credit Card Balances (A$) (DEC)

52.1B

-

51.3B

00:30

AUD

Credit Card Purchases (A$) (DEC)

27.6B

-

25.6B

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

07:00

EUR

German CPI (MoM) (JAN F)

-0.8%

-0.8%

Medium

07:00

EUR

German CPI (YoY) (JAN F)

0.5%

0.5%

Medium

07:00

EUR

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

0.3%

0.3%

High

07:00

EUR

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

1.4%

1.7%

High

07:00

EUR

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

1.7%

1.8%

High

09:00

EUR

Italian GDP w.d.a (QoQ) (4Q P)

0.3%

0.2%

Medium

09:00

EUR

Italian GDP w.d.a (YoY) (4Q P)

1.2%

0.8%

Medium

09:30

GBP

Construction Output s.a. (MoM) (DEC)

2.0%

-0.5%

Low

09:30

GBP

Construction Output s.a. (YoY) (DEC)

0.8%

-1.1%

Low

10:00

EUR

Eurozone Industrial Production (MoM) (DEC)

0.3%

-0.7%

Low

10:00

EUR

Eurozone Industrial Production (YoY) (DEC)

0.7%

1.1%

Low

10:00

EUR

Eurozone GDP SA (QoQ) (4Q A)

0.3%

0.3%

High

10:00

EUR

Eurozone GDP SA (YoY) (4Q A)

1.5%

1.6%

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.1120

1.1222

1.1273

1.1324

1.1375

1.1426

1.1528

GBP/USD

1.4115

1.4295

1.4386

1.4475

1.4566

1.4655

1.4835

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

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