FOREX: Dollar Outlook Hinges On Fed Comments As Oil Threatens Recovery

By Ilya Spivak, Currency Strategist

Talking Points
  • Oil Prices in Focus as Traders Weigh US Recovery Against Eurozone Recession
  • Comments from NY Fed’s Dudley in Focus as Traders Look for Stimulus Clues

The US Dollar (ticker: USDollar ) put in for a quiet start to the week, tradinglittle-changed against its major counterparts. The New ZealandDollar narrowly outperformed after February’sPerformance of Services Index rose to 55.5, showing thenon-manufacturing sector grew at the fastest pace in threemonths.

A quiet European data docket is likely to seetraders focus their attention on comments from New York FederalReserve President Bill Dudley . US economic growth has overtaken thespotlight as traders base their outlook for global output on theability of the recovery in North America to offset a recession inthe Eurozone.

As of last Friday, headwinds from rising oil prices have become the central item of consideration. US CPI produced the largest monthly gain in 10 months on the back of higher energy costs. Meanwhile, consumer confidence unexpectedly fell and industrial production stalled. Both outcomes likely owed to more expensive oil at least to some extent as crude’s ascent bleeds into the cost of gasoline and industrial petrochemicals.

Reasonably enough, fears that an oil spike will snuff out the US recovery again (as happened in late2010 – early 2011) have probably begun to multiply anew. With thatin mind, Dudley’s comments will be closely monitored asmarkets look to get a sense of how energy -price developments are factoring into theFed’s policy calculus.

With this in mind, a variety of outcomespresents itself. A relatively dovish tone that rekindles hopes ofstimulus should the recovery begin to falter is likely to sendthe US Dollar lower, with stocks-linked currencies like the Australian, Canadianand New Zealand Dollars and the Japanese Yen (where correlation s withTreasury yields remain important) outperforming. Alternatively,a neutral outcome echoing the FOMC statement that acknowledges therun-up in oil prices but doesn’t hint at policymakers’readiness to provide near-term support is likely to support thegreenback.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

1:30

CNY

China Property Prices Survey (FEB)

-

-

-

21:00

NZD

Westpac NZ Consumer Confidence (1Q)

102.4

-

101.3

21:30

NZD

Performance of Services Index (FEB)

55.5

-

53.8 (R+)

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

9:00

EUR

Euro-Zone Current Account s.a. (€) (JAN)

-

2.0B

Low

9:00

EUR

Italian Industrial Orders (MoM) (JAN)

-3.2%

5.5%

Low

9:00

EUR

Italian Industrial Orders (YoY) (JAN)

-2.9%

-4.3%

Low

9:00

EUR

Italian Industrial Sales (YoY) (JAN)

-

5.6%

Low

9:00

EUR

Italian Industrial Sales (MoM) (JAN)

-

3.4%

Low

9:00

EUR

Euro-Zone Current Account n.s.a. (€) (JAN)

-

16.3B

Low

10:00

EUR

Euro-Zone Construction Output (YoY) (JAN)

-

7.8%

Low

10:00

EUR

Euro-Zone Construction Output (MoM) (JAN)

-

0.3%

Low

12:35

USD

NY Fed Pres Dudley Speaks on Long Island

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3087

1.3225

GBPUSD

1.5738

1.5905

--- 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/2012/03/19/FOREX_Dollar_Outlook_Hinges_on_Fed_Comments_as_Oil_Threatens_Recovery.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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