Dollar At Turning Point Vs Top Counterparts, EU Summit And US GDP Key

By Ilya Spivak, Currency Strategist

Major Currencies vs. US Dollar (% change)

17 Oct 201 1 21 Oct 201 1

Talking Points
  • EUR : Euro May Decline Even if EU Delivers on Debt Crisis Measures
  • GBP : Pound Could Find Demand as Anti-Euro if EU Efforts Founder
  • JPY: Yen Crosses Reflect Risk Trends, USDJPY Shifts Focus to Yields
  • CAD, AUD, NZD: Comm Block Stil Anchored to Risk Sentiment Trends

Risk sentiment trends continue to dominateprice action as most major currencies remain closely correlatedwith the S&P 500 . Broadly speaking, sentiment trends remaindriven by the twin themes of the Euro Zone debtcrisis and the slowdown in theglobal economic recovery . On the former front, the spotlight is clearlypointed on the outcome of Wednesday’s EU leaders’summit as policymakers make a final push toward a tangiblenear-term solution. On the latter, all eyes are onthird-quarter US Gross DomesticProduct report.

Turning first to Europe, officials have toachieve on three fronts. They must: d ramatically reduce the Greek debt burden bycajoling banks to “voluntarily” accept losses on asmuch as 60 percent of their bond holdings; c ome up with the money to recapitalize thosebanks, cutting off contagion from Greece into the rest of the EUand preventing an evaporation of liquidity that saps the alreadyfragile economy of t he credit needed to do business; and craft a mechanism for debt-strapped countries tosecure funding, thereby avoiding a replay of the Greek dramaelsewhere.

A flurry of would-be proposals have made their way to the newswires over recent days, but looking past the minutiae it is clear that the goal of whatever emerges after all is said and done will be – once again – to only temporarily placate the financial markets. Indeed, the debt crisis was not born of the spending habits of Greece, Italy and company but of the inherent problem in lumping very different economies under one monetary umbrella while maintaining independent and widely divergent fiscal policies. This means that a lasting fix will call for cumbersome, time-consuming steps including augmenting the EU’s core treaties. The object of the game right now then is to squash fears of an immediate meltdown, buying time to haggle over the long-term solution in the years ahead, and any plan that is unveiled will be judged on those grounds.

As for the US GDP release, expectations callfor output to rise 2.5 percent in the three months throughSeptember, marking the strongest performance in a year. The outcomewould confirm that the US recovery is picking up steam after awoefully disappointing first half of the year, warding off fears ofa double-recession. Importantly, i t is unclear whether the outcome will prove supportive for risk appetitein terms of improving the outlook for global growth or detrimentalin that stronger US performance undermines the case for additionalquantitative easing (so-called “QE3”). To that end, monitoring the markets’response to the outcome ought to prove telling as traders gauge thelikely dynamics of price action in the weeks ahead.

EURO

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

26 OCT

16:00

EU Leaders Meet for Debt Summit

-

-

High

27 OCT

-

German Consumer Price Index (YoY) (OCT P)

2.5%

2.6%

Medium

BRITISH POUND

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

27 OCT

10:00

CBI Reported Sales (OCT)

-16

-15

Medium

27 OCT

23:01

GfK Consumer Confidence Survey (OCT)

-30

-30

Medium

JAPANESE YEN

Source: Bloomberg

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

27 OCT

-

Bank of Japan Interest Rate Decision

0.10%

0.10%

High

27 OCT

23:30

Jobless Rate (SEP)

4.5%

4.3%

Medium

27 OCT

23:30

National Consumer Price Index (YoY) (SEP)

0.1%

0.2%

Medium

27 OCT

23:30

National CPI Ex-Fresh Food (YoY) (SEP)

0.2%

0.2%

Medium

27 OCT

23:30

National CPI Ex Food, Energy (YoY) (SEP)

-0.4%

-0.5%

Medium

27 OCT

23:50

Industrial Production (YoY) (SEP P)

-2.3%

0.4%

Medium

CANADIAN DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

26 OCT

14:30

Monetary Policy Report

-

-

High

AUSTRALIAN DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EXP

PREV

IMPACT

None

NEW ZEALAND DOLLAR

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

26 OCT

20:00

Reserve Bank of New Zealand Rate Decision

2.50%

2.50%

High

26 OCT

21:45

Trade Balance (NZ$) (SEP)

-440M

-641M

Medium

26 OCT

21:45

Trade Balance YTD (NZ$) (SEP)

1065M

1084M

Medium

--- 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/article/fundamental_trends_monitor/2011/10/26/Dollar_at_Turning_Point_vs_Top_Counterparts_EU_Summit_and_US_GDP_Key.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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