FOREX: US Dollar May Weaken Vs Stocks-Linked Currencies, Euro To Lag

By Ilya Spivak, Currency Strategist

Talking Points
  • Dollar Corrects Lower in Asia, Digesting Largest Rally in Two Weeks
  • US Economic Data to Boost Risk Appetite, Stocks-Linked Currencies
  • Euro to Stay on the Defensive as EU Leaders Begin Two-Day Summit

The US Dollar corrected narrowly lower against its leadingcounterparts in overnight trade as FX markets digested after thegreenback issued the largest daily rally in two weeks over thepreceding 24 hours. The surge came after Fed Chairman BenBernanke said the fall in US unemployment has been“more rapid” than the central bank expected inhis semi-annual Congressional testimony , hinting a third round of asset purchases(so-called “QE3”) would not materialize. The downgradein dovish rhetoric weighed on stock prices – boosting demand for the Dollar as asafe haven – while denting worries about further dilution ofthe US money supply.

Looking ahead, all eyes turn to the US economiccalendar for confirmation of the previous day’s developments.The ISMManufacturing report takes top billing, with expectationscalling for the factory sector to expand at the fastest pace in 8months in February. A rebound in January’s PersonalSpending reading as well as continued growth inthe PersonalIncome gauge are also in the cards. On balance, thisis likely to prove supportive for risk appetite. Investors’knee-jerk reaction was to sell risky assets as additional stimulushopes faded, but that need not be a lasting response if the economyis truly able to stand on its own without further support frommonetary policy. It would be reasonable to think that evidenceprecisely to that effect is likely to be greeted positively,underpinning at least a near-term recovery in stocks-linked currencies .

With that in mind, the Euro still appears likely to continue to lag most ofthe other majors as Greece-linked jitters resurface ahead with thebeginning of the two-day EU leaders’summit . The focus here will be on the mechanics ofimplementing the second Greek bailout agreement , with Athens scrambling to complete a long checklist of requirements by the meeting’s conclusion to secure thefirst tranche of funding. Although EU policymakers have allowed Greece to missample deadlines before, the downgrade in credit market riskfollowing yesterday’s LTRO means their tolerance has been diminished . This opens the door for a testy outing , with the potential for a delay in the release of the first bit of bailout funding likely to keep the single currency onthe defensive .

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Terms of Trade Index (QoQ) (4Q)

-1.4%

-1.9%

-0.6% (R+)

22:30

AUD

AiG Performance of Manufacturing Index (FEB)

51.3

-

51.6

23:00

AUD

RPData-Rismark House Px Actual (JAN)

0.8%

-

-1.0% (R-)

23:50

JPY

Loans & Discounts Corp (YoY) (4Q)

0.0%

-

0.0%

23:50

JPY

Capital Spending excl Software (4Q)

4.9%

-7.4%

-11.0%

23:50

JPY

Capital Spending (4Q)

7.6%

-6.5%

-9.8%

00:30

AUD

Building Approvals (MoM) (JAN)

0.9%

2.0%

-0.8% (R+)

00:30

AUD

Building Approvals (YoY) (JAN)

-14.6%

-13.7%

-23.9% (R+)

00:30

AUD

Private Capital Expenditure (4Q)

-0.3%

3.8%

14.6% (R+)

1:00

CNY

PMI Manufacturing (FEB)

51.0

50.9

50.5

2:30

CNY

HSBC Manufacturing PMI (FEB)

49.6

-

48.8

5:00

JPY

Vehicle Sales (YoY) (FEB)

31.9%

-

40.7%

5:30

AUD

RBA Commodity Price Index (FEB)

98.1

-

99.4 (R-)

5:30

AUD

RBA Commodity Index SDR (YoY) (FEB)

3.5%

-

5.1% (R-)

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French ILO Mainland Unemployment Rate (4Q)

9.6%

9.3%

Low

6:30

EUR

French ILO Mainland Unemployment Chg (4Q)

-

42K

Low

6:30

EUR

French ILO Unemployment Rate (4Q)

-

9.7%

Low

6:45

CHF

Gross Domestic Product (QoQ) (4Q)

-0.1%

0.2%

Medium

6:45

CHF

Gross Domestic Product (YoY) (4Q)

1.1%

1.3%

Medium

7:00

GBP

Nationwide House Prices (MoM) (FEB)

0.2%

-0.2%

Medium

7:00

GBP

Nationwide House Prices (YoY) (FEB)

0.3%

0.6%

Medium

8:30

CHF

PMI Manufacturing (FEB)

48.5

47.3

Medium

8:45

EUR

Italian PMI Manufacturing (FEB)

47.0

46.8

Low

8:50

EUR

French PMI Manufacturing (FEB F)

50.2

50.2

Low

8:55

EUR

German PMI Manufacturing (FEB F)

50.1

50.1

Low

9:00

EUR

Euro-Zone PMI Manufacturing (FEB)

49.0

49.0

Low

9:00

EUR

Italian Unemployment Rate s.a. (FEB F)

8.9%

8.9%

Low

9:30

GBP

PMI Manufacturing (FEB)

52.0

52.1

Medium

10:00

EUR

Euro-Zone CPI Estimate (YoY) (FEB)

2.6%

2.7%

High

10:00

EUR

Euro-Zone Unemployment Rate (JAN)

10.4%

10.4%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3264

1.3435

GBPUSD

1.5879

1.6030

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

To contact Ilya , e-mail ispivak@dailyfx.com . Follow Ilya 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/2012/03/01/FOREX_US_Dollar_May_Weaken_vs_Stocks-Linked_Currencies_Euro_to_Lag.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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