Euro, Stocks-Linked Currencies Vulnerable As All Eyes Turn To ECB

By Ilya Spivak, Currency Strategist

Talking Points
  • Euro Vulnerable if ECB Signals Policy Easing Efforts Are on the Horizon
  • Relatively Hawkish ECB May Sink Risky Assets on Global Growth Fears
  • British Pound Pullback May Find Added Fuel in Lower Services PMI Print
  • US Jobless Claims, Services ISM Data to be Judged in Terms of QE3 Bets
  • Kiwi Selling on Jobs Data Unlikely to Last, Aussie Down on China Outlook

All eyes are on the European Central Bankinterest rate decision after yesterday’s dismal economic dataset showed the manufacturing and services sectors contacted at the fastest pace since June 2009 while the region-wide unemployment rate rose arecord-high 10.9 percent. While an outright interest rate cut isnot likely this time around with inflation holding at 2.6 percentin April, markets will look to the press conference from ECBPresident Mario Draghi to offer guidance on steps the central bankis prepared to take to alleviate what appears to be a deepeningrecession.

Hints of forthcoming easing – whether byoutright rate cuts or LTRO-style efforts – are likely toweigh on the Euro . If Draghi opts to invoke the centralbank’s singular mandate to assure price stability as a reasonfor inaction however, worries about the impact of an acceleratingdownturn in the Eurozone on global output at large may weigh onrisk appetite and undermine sentiment-linked currencies while boosting the safe-haven ones. This maydrag down the single currency against the likes of the US Dollar and Japanese Yen .

Elsewhere, UK ServicesPMI figures are expected to show that thenon-manufacturing sector slowed in April, which may put downwardpressure on front-end UK yields and weigh on the British Pound . A pair of bond auctions from France andSpain round out big-ticket event risk, with traderskeeping a watchful eye on average yield and bid-to-cover readingsfor signs of returning funding stress, although investors areunlikely to show directional conviction on the results until afterthe ECB announcement crosses the wires.

US J obless C laims and the ISM Non-manufacturingComposite gauge enter the spotlight later in thesession. The likelihood of a Fed QE3 program remains a driving theme for the greenback, meaning soft outcome s are likely to be taken as fodder for stimulushopes and could weigh on prices . The balance between such headwinds and anyboost from risk aversion or particularly dovish ECB rhetoric mayyet work in the Dollar’s favor however, particularlyconsidering traders’ reticence to commit to a firm QE3 viewahead of Friday’s closely-watched US Employment report.

The New ZealandDollar underperformed overnight, sliding as much as0.6 percent on average against its leading counterparts, followinga disappointing set of first-quarter Employment figures. Although hiring rose by 0.5 percent– an outcome that narrowly topped economists’ forecasts– the unemployment rate unexpectedly surged to 6.7 percent,marking the highest reading since the fourth quarter of 2010.Importantly, the participation rate also jumped to 68.8 percent, soselling pressure seems unlikely to prove lasting considering thejump in the jobless rate didn’t seem to reflect labor marketstress. The AustralianDollar sold off after the ChinaNon-manufacturing PMI index fell in April, pointing to slowdown inAustralia’s top export market.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Unemployment Rate (1Q)

6.7%

6.2%

6.3%

22:45

NZD

Employment Change (QoQ) (1Q)

0.4%

0.5%

0.1%

22:45

NZD

Employment Change (YoY) (1Q)

0.9%

0.9%

1.6%

22:45

NZD

Participation Rate (QoQ) (1Q)

68.8%

68.3%

68.2%

23:01

GBP

Lloyds Business Barometer (APR)

26

-

31

23:30

AUD

AiG Performance of Service Index (APR)

39.6

-

47

1:00

CNY

China Non-manufacturing PMI (APR)

56.1

-

58.0

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

CHF

UBS Real Estate Bubble Index (1Q)

-

0.8

Low

6:00

GBP

Nationwide House Prices sa (MoM) (APR)

0.5%

-1.0%

Medium

6:00

GBP

Nationwide House Prices nsa (YoY) (APR)

-0.3%

-0.9%

Medium

8:30

GBP

PMI Services (APR)

54.1

55.3

Medium

8:30

GBP

Official Reserves ($) (Changes) (APR)

-

-1132M

Low

8:30

EUR

Spain to Sell 2015-2017 Bonds

-

-

Medium

9:00

EUR

Euro-Zone PPI (MoM) (MAR)

0.6%

0.6%

Low

9:00

EUR

Euro-Zone PPI (YoY) (MAR)

3.4%

3.6%

Low

9:00

EUR

France to Sell 2017-2025 Bonds

-

-

Medium

11:45

EUR

European Central Bank Rate Decision

1.00%

1.00%

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3055

1.3226

GBPUSD

1.6122

1.6239

--- 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/2012/05/03/Euro_Stocks-Linked_Currencies_Vulnerable_as_All_Eyes_Turn_to_ECB.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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