Euro At Risk If Spanish GDP, Slower Inflation Drive ECB Rate Cut Bets

By Ilya Spivak, Currency Strategist

Talking Points
  • Euro at Risk if Spanish GDP, Slower Inflation Drive ECB Rate Cut Bets
  • Australian Dollar Underperforms as Traders Set Sights on RBA Meeting

Spain’s GrossDomestic Product report headlines the economic calendar inEuropean hours. Expectations call for output to shrink 0.4 percentin the first quarter from the three months through December,marking the second consecutive print in negative territory andputting the country in a technical recession. Traders are lookingto the outcome in the context of the Eurozone debt crisis amidwidespread fears that Spain is doomed to follow Greece down thepath to insolvency. A weak reading is likely to unnerve investorsfearing that an economic slump will reduce the government’stax take and limit scope for additional austerity, derailingdeficit-reduction efforts.

Elsewhere, a preliminary estimate ofApril’s Eurozone C onsumer PriceIndex reading is expected to show that inflationslowed to an annual rate of 2.5 percent, the lowest in eightmonths. Taken together with confirmation of recession in Spain, thecurrency bloc’s fourth-largest economy, the result may beginto plant seeds of ECB rate cuts on the horizon. Needless to say,such outcomes stand to threaten the Euro . On the issuance front, France is due to sell €8 billion in 91-, 154-and 364-day bills. As usual, markets will be monitoring averageyield and bid-to-cover readings for signs of funding stress,although the short tenor of the debt on offer may somewhat limitthe potential for fireworks.

The AustralianDollar underperformed overnight as traders lookedahead to tomorrow’s RBA interest rate decision, wherepolicymakers are widely expected to cut benchmark borrowing costsby 25 basis points. The day’s economic data set reinforcedselling pressure. An inflation gauge fromTD Securities put the annualized price growth rate at 1.9percent in April, marking the second month below the RBA’s2-3 percent target range. Separately, year-on-year Private SectorCredit growth slowed to 3.4 percent, the weakest insix months. A three-month low on China’s LeadingEconomic Index likewise undermined the Aussie amid fears thatslowing conditions in Australia’s top export partner willtranslate into faltering growth and ultimately deeper RBA rate cutsin the month ahead.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Building Permits (MoM) (MAR)

19.8%

6.0%

-6.2% (R+)

22:45

NZD

Trade Balance (NZ$) (MAR)

134M

417M

202M (R+)

22:45

NZD

Exports (NZ$) (MAR)

4.22B

4.37B

3.62B (R+)

22:45

NZD

Imports (NZ$) (MAR)

4.08B

3.95B

3.41B (R-)

22:45

NZD

Trade Balance 12mth YTD (NZ$) (MAR)

207M

501M

655M (R+)

23:01

GBP

Hometrack Housing Survey (YoY) (APR)

-0.9%

-

-1.0%

23:01

GBP

Hometrack Housing Survey (MoM) (APR)

0.1%

-

0.2%

23:44

CNY

China Leading Index (MAR)

100.52

-

100.69 (R+)

0:30

AUD

TD Securities Inflation (MoM) (APR)

0.3%

-

0.5%

0:30

AUD

TD Securities Inflation (YoY) (APR)

1.9%

-

1.8%

1:00

NZD

NBNZ Activity Outlook (APR)

36.1

-

38.8

1:00

NZD

NBNZ Business Confidence (APR)

35.8

-

33.8

1:00

AUD

HIA New Home Sales (MoM) (MAR)

-9.4%

-

3.0%

1:30

AUD

Private Sector Credit (YoY) (MAR)

3.4%

3.2%

3.5%

1:30

AUD

Private Sector Credit (MoM) (MAR)

0.4%

0.3%

0.4%

3:00

NZD

Money Supply M3 (YoY) (MAR)

5.0%

-

5.2%

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:00

EUR

Spanish GDP (Constant SA) (YoY) (1Q P)

-0.6%

0.3%

High

7:00

EUR

Spanish GDP (Constant SA) (QoQ) (1Q P)

-0.4%

-0.3%

High

8:00

EUR

Euro-Zone M3 s.a. (3mth avg) (MAR)

2.7%

2.3%

Low

8:00

EUR

Euro-Zone M3 s.a. (YoY) (MAR)

2.8%

2.8%

Low

9:00

EUR

Euro-Zone CPI Estimate (YoY) (APR)

2.5%

2.6%

Medium

9:00

EUR

Italian CPI (NIC incl. tobacco) (MoM) (APR P)

0.4%

0.5%

Low

9:00

EUR

Italian CPI (NIC incl. tobacco) (YoY) (APR P)

3.2%

3.3%

Low

9:00

EUR

Italian CPI – EU Harmonized (MoM) (APR P)

0.8%

2.5%

Low

9:00

EUR

Italian CPI – EU Harmonized (YoY) (APR P)

3.6%

3.8%

Low

13:00

EUR

France to Sell €8bn in 91-364 Day Bills

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3185

1.3297

GBPUSD

1.6186

1.6360

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

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me 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/2012/04/30/Euro_at_Risk_if_Spanish_GDP_Slower_Inflation_Drive_ECB_Rate_Cut_Bets.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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