FOREX: All Eyes On FOMC To Set Tone For US Dollar, Risk Appetite

By Ilya Spivak, Currency Strategist

Talking Points
  • Outlook for US Dollar, Risk Appetite Hinges on FOMC Announcement
  • Euro Likely to be Highly Sensitive to Downside Surprise on German ZEW
  • Yen Briefly Gains as BOJ Keeps Major Policy Framework Unchanged

All eyes are on the Federal Reservemonetary policy announcement as global growth fears overtake the spotlight as Greece-linked issues fade out of focus . Although no meaningful changes in policy areexpected, the language of the statement accompanying theannouncement will be critical. If the rate-setting FOMC committeecontinues to project the neutral-leaning tone that has emerged inrecent commentary and proved so market-moving after Bernanke’s Congressional testimony last month , the outcome is likely to prove negative forrisk appetite (and by extension sentiment-sensitive currencies ) while offering support to the US Dollar .

On balance, the most significant headwind facing global economic growth this year is the widely expected recession in the Eurozone. Investors are increasingly looking to the US – where growth is expected to accelerate this year – as the only significant offsetting factor. Within that context, a relatively positive tone from the Fed that trims hopes for a QE3 is likely to be perceived negatively for overall sentiment. Simply enough, a US economy primed with new stimulus is likely to be a more potent counterweigh to the slump in Europe, and vice versa.

On the European data front, the German ZEWsurvey of investor confidence is on tap. As wediscussed in our weekly Euro forecast , expectations for a narrow improvement makesense as a reflection of reduced risk following the second ECB LTROoperation in late February. However, a downside surprise may go a long waytoward demonstrating the markets worries about the growth outlook for thecurrency bloc and may weigh heavily on the Euro as rate-cut expectations build .

The greenback sold off in overnight trade asAsian stocks advanced, sapping demand for the go-to safe havencurrencies. The MSCI Asia Pacific regional benchmark index added0.9 percent. The sentiment-linked Australian and NewZealand Dollars outperformed, although the Aussie lagged itsKiwi counterpart. A supportive set of New Zealand house and foodprice data coupled with disappointing home loans figures fromAustralia appear to have accounted for the disparity.

The Japanese Yen spiked briefly higher after the Bank of Japan opted to keep benchmark interest rates as wellas the size of its asset-purchase fund and credit-loan programunchanged. The bank opted for smaller-scale measures including anextension on loan repayment through its growth program by 2 yearsto March 2014 and expansion of that program to ¥3.5 trillion,a new ¥500 billion growth program to finance small-scalebusiness lending, and a ¥1 trillion US Dollar lendingfacility. Broader risk-based trends quickly overtook price actionhowever and the Yen came back under pressure along withUSD.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

REINZ House Price Index (FEB)

3280.5

3253.8

21:00

NZD

REINZ House Price Index (MoM) (FEB)

0.8%

-1.4%

21:00

NZD

REINZ House Sales (YoY) (FEB)

37.0%

25.2%

21:45

NZD

Food Prices (MoM) (FEB)

0.6%

-

0.0%

23:00

NZD

QV House Prices (YoY) (FEB)

2.9%

-

2.7%

23:50

JPY

Tertiary Industry Index (MoM) (JAN)

-1.7%

0.2%

1.8% (R+)

0:01

GBP

RICS House Price Balance (FEB)

-13%

-14%

-16%

0:30

AUD

Home Loans (JAN)

-1.2%

-0.6%

2.1% (R-)

0:30

AUD

Investment Lending (JAN)

-7.1%

-

7.5%

0:30

AUD

Value of Loans (MoM) (JAN)

0.1%

-

2.1% (R+)

0:30

AUD

NAB Business Confidence (FEB)

1

-

4

0:30

AUD

NAB Business Conditions (FEB)

3

-

2

5:07

JPY

Bank of Japan Rate Decision

0.10%

0.10%

0.10%

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:30

EUR

French CPI (MoM) (FEB)

0.4%

-0.4%

Low

6:30

EUR

French CPI (YoY) (FEB)

2.4%

2.3%

Low

6:30

EUR

French CPI - EU Harmonized (MoM) (FEB)

0.5%

-0.4%

Low

6:30

EUR

French CPI - EU Harmonized (YoY) (FEB)

2.6%

2.6%

Low

6:30

EUR

French CPI Index (FEB)

123.66

123.06

Low

7:45

EUR

French Current Account (€) (FEB)

-

-3.0B

Low

8:15

CHF

Producer & Import Prices (MoM) (FEB)

0.2%

0.0%

Low

8:15

CHF

Producer & Import Prices (YoY) (FEB)

-2.4%

-2.4%

Low

9:00

EUR

Italian CPI (YoY) (FEB F)

3.3%

3.3%

Low

9:00

EUR

Italian CPI (MoM) (FEB F)

0.4%

0.4%

Low

9:00

EUR

Italian CPI - EU Harmonized (YoY) (FEB F)

3.4%

3.4%

Low

9:00

EUR

Italian CPI - EU Harmonized (MoM) (FEB F)

0.2%

0.2%

Low

9:30

GBP

Visible Trade Balance (£/Mln ) (JAN)

-7900

-7111

Medium

9:30

GBP

Total Trade Balance (£/Mln ) (JAN)

-1900

-1109

Low

9:30

GBP

Trade Balance Non EU (£/Mln ) (JAN)

-4300

-3748

Low

9:30

GBP

DCLG UK House Prices (YoY) (JAN)

-

0.1%

Low

10:00

EUR

German ZEW Survey (Curr. Situation) (MAR)

41.5

40.3

Medium

10:00

EUR

German ZEW Survey (Econ Sentiment) (MAR)

10

5.4

High

10:00

EUR

Euro-Zone ZEW Survey (Econ Sentiment) (MAR)

-

-8.1

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3103

1.3183

GBPUSD

1.5597

1.5740

--- 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/2012/03/13/FOREX_All_Eyes_on_FOMC_to_Set_Tone_for_US_Dollar_Risk_Appetite.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.

More from Currencies

Bitcoin Today: Prices Continue to Slump Heading Into Weekend

Bitcoin Today: Prices Continue to Slump Heading Into Weekend

Bitcoin Today: Prices Continue Skid Toward $7,000 as DOJ Launches Investigation

Bitcoin Today: Prices Continue Skid Toward $7,000 as DOJ Launches Investigation

Bitcoin Today: Prices Plummet Below $8,000 in Market Downturn

Bitcoin Today: Prices Plummet Below $8,000 in Market Downturn

Bitcoin Today: Prices Slip as Broader Crypto Market Struggles to Make Traction

Bitcoin Today: Prices Slip as Broader Crypto Market Struggles to Make Traction

Bitcoin Today: Prices Attempt to Recover From One-Month Lows

Bitcoin Today: Prices Attempt to Recover From One-Month Lows