By Ilya Spivak, Currency Strategist

Talking Points
  • US Dollar, Japanese Yen Rise as EU Bickering Fuels Risk Aversion
  • S&P 500 Index Futures Flat, Hinting Sentiment Lacks Conviction
  • Pick-up in UK Retail Sales Data Likely to Pass with Little Fanfare
  • Spanish Bond Auction, Greek Austerity Vote Now in the Spotlight

The US Dollar and Japanese Yen pushed higher overnight as stocks slumped across Asian exchanges, driving demand for the go-to safe haven currencies. The MSCI Asia Pacific regional benchmark equity index sank 1.8 percent as rumors of inter-EU wrangling ahead of the October 23 deadline to unveil a comprehensive plan to contain the Euro Zone debt crisis weighed on confidence.

This time, rumors that French President Nicolas Sarkozy and German Chancellor Angela Merkel were at odds about the ECB’s role in leveraging the firepower of the EFSF bailout fund seemed to be the catalyst. Meanwhile, Finnish parliamentary finance committee head Kimmo Sasi aired out concerns that applying leverage to EFSF funds could disguise potential risks, saying such a thing may not pass his country’s legislature. Any major changes to the EFSF that are included in the October 23 plan will likely need to be ratified by unanimously by Euro Zone member states, meaning if Finland is not on board the entire process could end even before it starts in earnest.

Looking ahead, the focus on EU debt woes will put the spotlight on Spain as the country sells bonds across 2017-2021 maturities. Poor uptake or particularly high yields are likely to fan the flames of risk aversion. Meanwhile, Greece is scheduled to vote on new austerity measures meant to release an 8 billion euro EU/IMF loan tranche amid increasingly acute public protest. Importantly, sentiment trends appear indecisive, with S&P 500 stock index futures flat and warning that current risk trends may be susceptible to another swift reversal.

On the data front, UK Retail Sales headline the docket, with receipts excluding auto fuel expected to rise 0.6 percent in the year through September after printing down 0.1 percent in the previous month. On balance, the outcome is unlikely to prove particularly market-moving considering a recovery in the month in question was amply telegraphed last week by an analogous report from the British Retail Consortium. Furthermore, the release carries only limited implications for monetary policy in the aftermath of yesterday’s Bank of England minutes release. An updated set of official German GDP Forecasts may prove interesting however as traders gauge the degree of slowdown in the Euro Zone in the months ahead.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

0:30

AUD

RBA Foreign Exchange Transaction (A$) (SEP)

641M

-

367M

0:30

AUD

NAB Business Confidence (3Q)

-4

-

5 (R-)

5:00

JPY

Coincident Index (AUG F)

107.6

-

107.4

5:00

JPY

Leading Index (AUG F)

104.3

-

103.8

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German Producer Prices (MoM) (SEP)

0.2%

-0.3%

Medium

6:00

EUR

German Producer Prices (YoY) (SEP)

5.5%

5.5%

Medium

6:00

CHF

Exports (MoM) (SEP)

-

-7.0%

Low

6:00

CHF

Imports (MoM) (SEP)

-

0.9%

Low

6:00

CHF

Trade Balance (CHF) (SEP)

-

0.76B

Medium

7:00

JPY

Convenience Store Sales (YoY) (SEP)

-

7.9%

Low

8:30

EUR

Spain to Sell 2017-2021 Bonds

-

-

High

8:30

GBP

Retail Sales ex Auto Fuel (MoM) (SEP)

0.2%

-0.1%

Medium

8:30

GBP

Retail Sales ex Auto Fuel (YoY) (SEP)

0.6%

-0.1%

Medium

8:30

GBP

Retail Sales w/Auto Fuel (MoM) (SEP)

0.0%

-0.2%

Low

8:30

GBP

Retail Sales w/Auto Fuel (YoY) (SEP)

0.6%

0.0%

Low

9:00

CHF

ZEW Survey (Expectations) (OCT)

-

-75.7

Medium

10:00

EUR

German Economic Ministry New GDP Forecasts

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3641

1.3844

GBPUSD

1.5619

1.5850

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

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

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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/2011/10/20/FOREX_Dollar_Yen_Rise_as_EU_Wrangling_Stokes_Risk_Aversion.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.