Euro At Risk Of Deeper Losses On Sidelined ECB, Fading Risk Appetite

By Ilya Spivak, Currency Strategist

Talking Points
  • Euro May Decline as Rate Cut Outlook Builds on Soft Data, Sidelined ECB
  • US Dollar, Yen Aim Higher as Stock Index Futures Point to Risk Aversion
  • Australian Dollar Underperforms on Fading QE3 Hopes, Dovish RBA Bets

The European CentralBank interest ratedecision headlines the calendar. Policymakers areexpected to keep the benchmark interest rate unchanged at 1 percentand appear unlikely to offer any new non-standard measures asinflation readings remain uncomfortably elevated (2.6 percentyear-on-year in March).

Rather, ECB President Mario Draghi is likely to stress recent progress on the debt crisis front at the press conference following the announcement. The central certainly deserves credit – its 3-year LTRO operations proved to be the most potent remedy yet to sovereign risk pressure – but there is little here that could materially surprise investors and thereby generate fireworks from price action.

On the economic data front, the final revisionof the Eurozone CompositePMI gauge is forecast to confirm thatmanufacturing- and service-sector activity contracted for theseventh consecutive month in March. German FactoryOrders are expected to rise in February whileregion-wide Retail Sales pull back a bit, but the 3- and 6-month trendin both indicators points definitively lower.

Taken against a backdrop of a sidelined ECB,the data set may prove to weigh on the Euro as traders reckon that withholding stimulus nowmay translate into more aggressive easing down the road asrecession deepens. Spain is in focus on the issuance docket with Madridscheduled to sell a tranche of 2015, 2016 and 2020bonds.

Sizing up sentiment trends, stock indexfutures tracking key European and US stock indexes arepointing uniformly lower, hinting risk appetite is likely to remainon the defensive to the detriment of equities-linked currencies . The US ADP Employment reading as well as the ISMNon-manufacturing Composite measure are on tap late into the session, withmoderation expected on both fronts and aiming to compound thedefensive tone across global exchanges.

The US Dollar and Japanese Yen outperformed in overnight trade, buoyed bysafe-haven demand after a relatively hawkish set of FOMC meeting minutes damped hopes that additional stimulus wouldaccelerate demand in the world’s top economy and sankregional stocks. The MSCI Asia Pacific regional benchmark equityindex fell 1.5 percent.

The AustralianDollar underperformed as headwinds from risk aversionwere compounded by an increasingly dovish monetary policy outlookfollowing yesterday’s RBA interest rate decision . Markets now price an 86 percent probabilityof a 25bps rate cut at the central bank’s May meeting and80bps in easing over the coming year, according to data from CreditSuisse.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

BRC Shop Price Index (YoY) (MAR)

1.5%

1.5%

1.2%

23:30

AUD

AiG Performance of Service Index (MAR)

47.0

-

46.7

1:00

NZD

ANZ Commodity Price (MAR)

-1.7%

-

0.0%

1:30

AUD

Trade Balance (A$) (FEB)

-480M

1100M

-971M (R-)

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

GBP

Halifax House Price (3M/Y) (MAR)

-1.7%

-1.9%

Medium

7:00

GBP

Halifax Plc House Prices s.a. (MoM) (MAR)

-0.2%

-0.5%

Medium

7:45

EUR

Italian PMI Services (MAR)

44.4

44.1

Low

7:50

EUR

French PMI Services (MAR F)

50

50

Low

7:55

EUR

German PMI Services (MAR F)

51.8

51.8

Medium

8:00

EUR

Euro-Zone PMI Services (MAR F)

48.7

48.7

Medium

8:00

EUR

Euro-Zone PMI Composite (MAR F)

48.7

48.7

Medium

8:00

EUR

Italian Deficit to GDP (YTD) (4Q)

-

4.3%

Low

8:30

EUR

Spain to Sell 2015-2020 Bonds

-

-

Medium

8:30

GBP

Official Reserves (Changes) (MAR)

-

$746M

Low

8:30

GBP

PMI Services (MAR)

53.4

53.8

Medium

9:00

EUR

Euro-Zone Retail Sales (MoM) (FEB)

-0.2%

0.3%

Medium

9:00

EUR

Euro-Zone Retail Sales (YoY) (FEB)

-1.1%

0.0%

Medium

10:00

EUR

German Factory Orders n.s.a. (YoY) (FEB)

-5.5%

-4.9%

Medium

10:00

EUR

German Factory Orders s.a. (MoM) (FEB)

1.4%

-2.7%

Medium

11:00

USD

MBA Mortgage Applications (MAR 30)

-

-2.7%

Low

11:45

EUR

European Central Bank Rate Decision

1.00%

1.00%

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3118

1.3330

GBPUSD

1.5796

1.6009

--- 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/2012/04/04/Euro_at_Risk_of_Deeper_Losses_on_Sidelined_ECB_Fading_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.

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