Dollar Faces Tough Week Ahead As Focus Turns To US Economic Data

By Ilya Spivak, Currency Strategist

Major Currencies vs. US Dollar (% change)

26 Dec 11 – 30 Dec 11

Talking Points

• Markets to Focus on US Data, Eurozone Debt Crisis in the Background
• Signs of Improving US Outlook to Boost Risky Assets, Weigh on US Dollar

Tight correlations between most major currency pairs and the S&P 500 put broad-based market sentiment firmly in control of FX market price action (USDJPY remains an exception, with intervention fears insulating the pair from larger market themes). While the Eurozone debt crisis presents a lingering worry, the absence of scheduled event risk on this front until next week puts the spotlight on US economic data over the days ahead.

Economists’ consensus forecasts (as polled by Bloomberg) suggest GDP growth in the United States will accelerate to 2.1 percent in 2012, separating it from the other two leading engines of global output (the Eurozone and China) where performance is expected to deteriorate. This it will be up largely up to the North American behemoth to mitigate the severity of the worldwide slowdown now widely expected this year. With that in mind, the data docket appears broadly supportive: the ISM Manufacturing gauge is set to show factory-sector growth accelerated to the strongest in six months, Factory Orders are set to add the most since July, and the all-important Nonfarm Payrolls reading is forecast to reveal job creation continued to accelerate as the employment grew by 150,000.

On balance, this favors a cautious recovery in risk appetite and appears to bode ill for the safe-haven US Dollar against most of its counterparts. Needless to say, an unexpected headline reminding investors of the danger still posed by Eurozone sovereign solvency issues may upset this dynamic. Indeed, countries in the currency bloc will need to refinance a whopping €157 billion in maturing debt (likely at punitively high borrowing costs) just in the first three months of the year.

EURO

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
04 JAN	9:00	Euro Zone PMI Composite (DEC F)	47.9	47.9	Medium
04 JAN	10:00	Euro Zone CPI Estimate (YoY) (DEC)	2.8%	3.0%	High
06 JAN	11:00	German Factory Orders (MoM) (NOV)	-1.8%	5.2%	Medium
06 JAN	11:00	German Factory Orders (YoY) (NOV)	-1.2%	5.4%	Medium

BRITISH POUND

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
04 JAN	09:30	Mortgage Approvals (NOV)	52.5K	52.7K	Medium
05 JAN	09:30	PMI Services (DEC)	51.5	52.1	Medium

JAPANESE YEN

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
05 JAN	5:00	Vehicle Sales (YoY) (DEC)	-	24.1%	Medium

CANADIAN DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
05 JAN	15:00	Ivey Purchasing Managers Index (DEC)	54.8	59.9	Medium
06 JAN	12:00	Net Employment Change (DEC)	17.5K	-18.6K	High
06 JAN	12:00	Unemployment Rate (DEC)	7.4%	7.4%	High

AUSTRALIAN DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
04 JAN	22:30	AiG Performance of Service Index (DEC)	-	47.7	Medium
05 JAN	00:30	Trade Balance (A$) (NOV)	1650M	1595M	Medium

NEW ZEALAND DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY	GMT	EVENT	EXP	PREV	IMPACT
		None

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

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Original Article: http://www.dailyfx.com/forex/fundamental/article/fundamental_trends_monitor/2012/01/03/Dollar_Faces_Tough_Week_Ahead_as_Focus_Turns_to_US_Economic_Data.html

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