FOREX: Euro, Aussie Dollar To Diverge On ECB Rate Decision Outcome

By Ilya Spivak, Currency Strategist

Talking Points
  • ECB to Keep Rates on Hold, All Eyes on Draghi Comments for Clues on Future Measures
  • Rising Pre-Commitments Hint Greek PSI to be Successful as Bond Swap Deadline Looms
  • US Dollar, Japanese Yen Sold as Risk Appetite Recovery Continues Across Asian Bourses
  • Kiwi Outperforms Despite Cautious RBNZ, Aussie Dollar Lags on Disappointing Jobs Data

Eurozone event risk dominates the spotlight.First, the European CentralBank is expected to hold interest rates unchanged at1 percent at the monthly policy meeting. Indeed, additionalaccommodative measures now are probably too much to ask forconsidering we are only a week removed from a large 3-year LTROoperation. With that in mind, traders will be focused on ECBPresident Mario Draghi’s press conference following theannouncement for clues on future efforts including further refinancingoperations and/or overt rate cuts, as well as their likelytriggers.

Importantly, the ECB announcement has bothdomestic and market-wide dimensions. Expectations of a 2012recession in the Eurozone – the world’s largest economy whentaken collectively – have been a key driver of broader riskaversion. With that in mind, a relatively dovish ECB outing may weigh heavily on the Euro – where prices continue to track benchmark German bond yields – while offering support to risk appetite and stocks-linked currencies on hopes that the region’s downturn canbe made relatively less severe.

Later in the day, the Greek PSIdeadline looms at 20:00 GMT. Private holders of Greekdebt must decide by this time if they will participate in a bondswap that would see them exchange their paper for new longer-datedbonds while accepting a staggering loss of 70 percent on theinitial investment. Athens set an initial goal of at least 75percent participation, but also said that it would imposecollective action clauses (CACs) to cajole hold-outs provided atleast two-thirds (66 percent) of bond holders volunteer.

For their part, Eurozone officials have asked for between 95 and 100 percent participation to begin disbursing the €130 billion second Greek bailout package. If the first tranche of aid is not paid out, Greece can default as soon as this month. While a Greek default is no longer the threat it once was after ECB LTRO efforts effectively assured such an outcome would not create a market-wide credit squeeze, uncertainty about the final PSI result is keeping investors jittery nonetheless.

Early indications suggest PSI will besuccessful however. Banks and pension funds representing over 40percent of would-be participants said they would take partyesterday, joining others that have already committed and stokingoptimism that the 75 percent threshold will be overcome. Elsewhere,the Bank ofEngland rate decision is likely to be anon-event as policymakers proceed with implementing the latest QEexpansion for now, with traders having to wait forminutes from the sit-down due in two weeks for furtherguidance.

The US Dollar (ticker: USDollar ) and Japanese Yen moved lower overnight as Asian stocksrecovered, sapping demand for the go-to safe haven currency. TheMSCI Asia Pacific regional benchmark equity index added 0.6percent, correcting higher after three days of aggressive sellingthat brought the gauge to the lowest in five weeks. The New ZealandDollar outperformed despite an initially negativereaction to dovish RBNZ rhetoric . The likewise sentiment-linked AustralianDollar was not far behind but lagged a bit courtesy ofa disappointing jobs report .

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

20:00

NZD

Reserve Bank of New Zealand Rate Decision

2.50%

2.50%

2.50%

21:45

NZD

Manufacturing Activity (4Q)

1.2%

-

0.2% (R+)

21:45

NZD

Manufacturing Activity Volume (QoQ) (4Q)

1.3%

-

-1.7% (R-)

23:50

JPY

Gross Domestic Product (QoQ) (4Q F)

-0.2%

-0.2%

-0.6%

23:50

JPY

Gross Domestic Product Annualized (4Q F)

-0.7%

-0.6%

-2.3%

23:50

JPY

GDP Deflator (YoY) (4Q F)

-1.8%

-1.6%

-1.6%

23:50

JPY

Nominal GDP (QoQ) (4Q F)

-0.5%

-0.3%

-0.8%

23:50

JPY

Bank Lending Banks ex-Trust (FEB)

0.8%

-

0.7%

23:50

JPY

Bank Lending incl Trusts (YoY) (FEB)

0.6%

-

0.6%

23:50

JPY

Current Account Total (¥) (JAN)

-437.3B

-320.0B

303.5B

23:50

JPY

Adjusted Current Account Total (¥) (JAN)

115.6B

322.3B

776.2B (R+)

23:50

JPY

Current Account Balance (YoY) (JAN)

-179.9%

-151.3%

-74.7%

23:50

JPY

Trade Balance - BOP Basis (¥) (JAN)

-1381.6B

-

-145.8B

0:30

AUD

Employment Change (FEB)

-15.4K

5.0K

46.2K (R-)

0:30

AUD

Unemployment Rate (FEB)

5.2%

5.2%

5.1%

0:30

AUD

Full Time Employment Change (FEB)

0.0K

-

15.3K (R+)

0:30

AUD

Part Time Employment Change (FEB)

-15.4K

-

30.9K (R-)

0:30

AUD

Participation Rate (FEB)

65.2%

65.3%

65.3%

2:00

JPY

Tokyo Avg Office Vacancies (%) (FEB)

9.15

-

9.23

4:30

JPY

Bankruptcies (YoY) (FEB)

5.2%

-

-5.4%

5:00

JPY

Eco Watchers Survey: Current (FEB)

45.9

46.0

44.1

5:00

JPY

Eco Watchers Survey: Outlook (FEB)

50.1

-

47.1

6:00

JPY

Machine Tool Orders (YoY) (FEB P)

-8.6%

-

-6.9%

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French Non-Farm Payrolls (QoQ) (1Q F)

-0.2%

-0.2%

Low

7:30

EUR

French BoF Business Sentiment (FEB)

96

96

Low

7:45

EUR

French Trade Balance (JAN)

-5150M

-4993M

Low

8:15

CHF

Consumer Price Index (MoM) (FEB)

0.2%

-0.4%

Medium

8:15

CHF

Consumer Price Index (YoY) (FEB)

-0.9%

-0.8%

Medium

8:15

CHF

CPI – EU Harmonised (MoM) (FEB)

0.1%

-0.7%

Medium

8:15

CHF

CPI – EU Harmonised (YoY) (FEB)

-0.7%

-0.9%

Medium

11:00

EUR

German Industrial Production s.a. (MoM) (JAN)

1.1%

-2.9%

Low

11:00

EUR

German Industrial Production (YoY) (JAN)

1.1%

0.9%

Medium

12:00

GBP

Bank of England Rate Decision

0.50%

0.50%

High

12:00

GBP

BOE Asset Purchase Target

325B

325B

High

12:45

EUR

European Central Bank Rate Decision

1.00%

1.00%

High

13:30

EUR

ECB Pres Draghi Holds Press Conference

-

-

High

20:00

EUR

Greek PSI Agreement Deadline

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3109

1.3272

GBPUSD

1.5707

1.5794

--- 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/2012/03/08/FOREX_Euro_Aussie_Dollar_to_Diverge_on_ECB_Rate_Decision_Outcome.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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