Euro Zone Finance Ministers’ Summit To Set Pace For Major Currencies

By Ilya Spivak, Currency Strategist

Major Currencies vs. US Dollar (% change)

21 Nov 2011 – 25 Nov 2011

Talking Points

• EUR : Eurozone FinMin Summit Takes Center Stage
• GBP: Pound Falls in With Overall Sentiment Trends
• JPY: Yen Remains Choppy on FX Intervention Fears
• CAD, AUD, NZD: Stocks Continue to Set Direction

Most major currencies remain intimately correlated with the S&P 500 – a proxy for market-wide risk sentiment trends – suggesting big-picture trends continue to dominate price action. This keeps the spotlight on the Eurozone debt crisis but also keeps the outlook for US economic growth in the picture as a long list of top-tier economic data releases crosses the wires.

In Europe, traders are focused on a two-day meeting of Euro area finance ministers starting in Brussels on Tuesday . Risk appetite has been in recovery mode since the start of the week as traders pared bets on continued risk aversion ahead of the sit-down on the off-chance that policymakers would finally take real strides toward putting their fiscal houses in order . However, a momentum is likely to slow going forward. Indeed, with markets unsure rather than outright optimistic, the bounce can only last long enough for traders to bring their portfolios to a neutral setting, with the actual outcome of the summit now needed to establish a directional bias .

Broadly speaking, risk-supportive developments can come in two forms. One option is closer fiscal integration that allows for some sort of shared responsibility for regional debt (like the so-called “Eurobonds” idea making the rounds recently), allowing high-debt countries to import some of the positive reputation of prudent ones. The other is the emergence of the European Central Bank as a true lender of last resort to countries shut out of market funding by prohibitively high borrowing costs. Such an arrangement would see the ECB wield their balance sheet to introduce large-scale bond purchases, a scheme likely resting on QE-type financing.

Turning to the US, the economic calendar is overflowing with significant event risk. Consumer Sentiment figures kick things off on Tuesday, followed by the Fed’s Beige Book regional economic survey on Wednesday and the ISM Manufacturing gauge on Thursday. Needless to say, the all-important monthly Employment Report due on Friday takes top billing. On balance, improvements (if moderate ones) are expected on all fronts. The degree to which this proves supportive for risk appetite and thereby negative for the US Dollar against its top counterparts depends in large part on how the Eurozone summit works out, with a negative outcome in Brussels likely to overshadow supportive US data. Alternatively, if the currency bloc’s policymakers manage to stoke optimism, indications of stronger growth in the world’s top economy (particularly as Europe and China are slowing) are likely to amplify the subsequent improvement in sentiment.

EURO

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
29 NOV	-	Euro Zone FinMin Summit – Day 1	-	-	High
30 NOV	-	Euro Zone FinMin Summit – Day 2	-	-	High
30 NOV	8:55	German Unemployment Change (NOV)	-5K	10K	Medium
30 NOV	10:00	Euro Zone CPI Estimate (YoY) (NOV)	3.0%	3.0%	Medium
01 DEC	9:30	Spain to Sell 2015-2017 Bonds	-	-	High
01 DEC	10:00	France to Sell 2017-2041 Bonds	-	-	High
02 DEC	10:00	Euro Zone PPI (YoY) (OCT)	5.6%	5.8%	Medium

BRITISH POUND

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
30 NOV	0:01	GfK Consumer Confidence Survey (NOV)	-33	-32	Medium
01 DEC	9:30	PMI Manufacturing (NOV)	47.0	47.4	Medium

JAPANESE YEN

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
29 NOV	23:15	Nomura/JMMA Manufacturing PMI (NOV)	-	50.6	Medium
29 NOV	23:50	Industrial Production (YoY) (OCT P)	-1.0%	-3.3%	Medium
01 DEC	23:50	Capital Spending excl Software (3Q)	-3.0%	-8.2%	Medium
01 DEC	23:50	Capital Spending (3Q)	-3.6%	-7.8%	Medium

CANADIAN DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
30 NOV	13:30	Quarterly GDP Annualized (3Q)	3.0%	-0.4%	High
30 NOV	13:30	GDP (MoM) (SEP)	0.3%	0.3%	High
30 NOV	13:30	GDP (YoY) (SEP)	2.7%	2.4%	High
02 DEC	12:00	Unemployment Rate (NOV)	7.3%	7.3%	High
02 DEC	12:00	Net Change in Employment (NOV)	17.5K	-54.0K	High

AUSTRALIAN DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
30 NOV	0:30	Private Sector Credit (MoM) (OCT)	0.4%	0.5%	Medium
30 NOV	0:30	Private Sector Credit (YoY) (OCT)	3.6%	3.4%	Medium
30 NOV	0:30	Private Capital Expenditure (3Q)	8.0%	4.9%	Medium
30 NOV	22:30	AiG PMI (NOV)	-	47.4	Medium

NEW ZEALAND DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
01 DEC	00:00	ANZ Commodity Price (NOV)	-	-3.5%	Medium

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

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