FOREX: Dollar, Yen Likely To Extend Gains As Stock Markets Drop Anew

By Ilya Spivak, Currency Strategist

Talking Points
  • FX Markets Yield Muted Response to RBA Minutes, Chinese GDP Report
  • UK CPI, German ZEW Data Unlikely to Stir Much FX Market Volatility
  • S&P 500 Futures, EU CDS Rates Point to Renewed Risk Aversion Ahead

UK Consumer PriceIndex figures and the German ZEWSurvey of investor confidence headline the economiccalendar in European hours. The former reading is expected to showinflation accelerated to 4.9 percent in September, marking thehighest reading in three years. The outcome is likely to pass withlittle fanfare considering its limited implications for themonetary policy after the Bank of England restarted asset purchasesearlier this month.

Meanwhile, the latter report is forecast to mark the eighth consecutive month of deterioration in analyst sentiment, registering at the lowest since December 2008. Here too however, the reading offers nothing particularly surprising that has not largely made its way into the exchange rate some time ago. As such, a meaningfully strong reaction from price action seems unlikely.

Rather, risk sentiment is likely to remain asthe most potent driver of the major currencies, with the EU debt crisis still front and center. S&P 500 stockindex futures are pointing lower while most Euro Zone creditdefault swap (CDS) rates – a measure of the cost of insuringagainst a country’s default that rises with increased marketstress – are pushing upward, hinting safe-haven currencies(USD, JPY) are likely to resume their advance.

The US Dollar and Japanese Yen corrected gently lower in overnight trade,sliding 0.3 and 0.2 percent respectively against their leadingcounterparts having rallied aggressively amid renewed risk aversion over the preceding 24 hours. The economiccalendar proved to have only limited influence on priceaction.

Indeed, the AustralianDollar was little changed after minutes from theOctober 3 Reserve Bank ofAustralia monetary policy meeting showed the central banksaw economic growth as “somewhat slower” than expectedwhile the inflation outlook had become “lessconcerning”, opening the door for interest rate cuts. Thereaction to Chinese GrowthDomestic Product figures that showed the world’ssecond-largest economy grew at the slowest annual rate in two yearsproved likewise muted.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:30

AUD

Reserve Bank's Board October Minutes

-

-

-

2:00

CNY

Real GDP YTD (YoY) (3Q)

9.4%

9.5%

9.6%

2:00

CNY

Real GDP (QoQ) (3Q)

2.3%

-

2.4% (R+)

2:00

CNY

Real GDP (YoY) (3Q)

9.1%

9.3%

9.5%

2:00

CNY

Industrial Production YTD (YoY) (SEP)

14.2%

14.1%

14.2%

2:00

CNY

Industrial Production (YoY) (SEP)

13.8%

13.4%

13.5%

2:00

CNY

Fixed Assets Inv Excl. Rural YTD (YoY) (SEP)

24.9%

24.8%

25.0%

2:00

CNY

Retail Sales YTD (YoY) (SEP)

17.0%

16.9%

16.9%

2:00

CNY

Retail Sales (YoY) (SEP)

17.7%

17.0%

17.0%

5:30

JPY

Nationwide Department Store Sales (YoY) (SEP)

-2.4%

-

-2.9%

5:30

JPY

Tokyo Department Store Sales (YoY) (SEP)

-3.6%

-

-1.7%

6:00

JPY

Machine Tool Orders (YoY) (SEP F)

20.1%

-

20.3%

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

EU 25 New Car Registrations (SEP)

-

7.7%

Low

8:30

GBP

Consumer Price Index (MoM) (SEP)

0.4%

0.6%

Medium

8:30

GBP

Consumer Price Index (YoY) (SEP)

4.9%

4.5%

High

8:30

GBP

Consumer Price Index – Core (YoY) (SEP)

3.2%

3.1%

Medium

8:30

GBP

Retail Price Index (SEP)

237.6

236.1

Low

8:30

GBP

Retail Price Index (MoM) (SEP)

0.5%

0.6%

Low

8:30

GBP

Retail Price Index (YoY) (SEP)

5.4%

5.2%

Low

8:30

GBP

Retail Price Index Ex Mort Interest (YoY) (SEP)

5.5%

5.3%

Low

9:00

EUR

German ZEW Survey (Econ. Sentiment) (OCT)

-45.0

-43.3

High

9:00

EUR

German ZEW Survey (Curr. Situation) (OCT)

40.0

43.6

Medium

9:00

EUR

Euro-Zone ZEW Survey (Econ. Sentiment) (OCT)

-

-44.6

Medium

9:00

EUR

Italian Current Account (€) (AUG)

-

1663M

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3605

1.3859

GBPUSD

1.5700

1.5817

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

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me on Twitter at @IlyaSpivak

To be added to Ilya 's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2011/10/18/FOREX_Dollar_Yen_Likely_to_Extend_Gains_as_Stock_Markets_Drop_Anew.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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