Dollar at Risk if Soft US Data Underpins Fed QE Continuity Bets

Friday, April 12, 20130 comments

The US Dollar may continue to decline if soft economic data underpins Fed QE continuity expectations. The Yen rose on risk aversion and BOJ rhetoric overnight.
Talking Points
  • Dollar May Fall as Soft US Data Underpins Fed QE Continuity Bets
  • Euro May Rise as Eurozone FinMin Meeting Reduces Instability Risk
  • Yen Gains on Risk Aversion, Kuroda Remarks in Quiet Asian Trade
The economic calendar is relatively uneventful in European trading hours, shifting investors’ focus to theUS data docket. The March Retail Sales report is expected to show receipts stalled after rising 1.1 percent in February, yielding the weakest result in five months. Meanwhile, the Producer Price Indexgauge for the same period is forecast to show wholesale inflation slowed over the same period while April’s preliminary Consumer Confidence reading from the University of Michigan ticks narrowly downward. On balance, a soft outing is likely to scatter expectations for a tapering of Fed QE efforts, weighing on the US Dollar amid renewed dilution fears (and vice versa).
Eurozone finance ministers are due to meet in Brussels. The sit-down is expected to see the adoption of a formal Memorandum of Understanding (MoU) on the bailout for Cyprus as well as produce an extension of maturities on rescue loans to Portugal and Ireland (with the wires hinting the two countries will get an additional seven years to repay their obligations). A slower pace of fiscal consolidation may also be approved for Spain. On balance, the outing seems likely to weigh against regional instability risk and boost the Euro. As such, we continue to hold long.
The Japanese Yen narrowly outperformed in otherwise lackluster overnight trade as Asian stocks declined, spurring a parallel unwinding of carry trades financed cheaply in terms of the go-to funding currency. The MSCI Asia Pacific index fell 0.2 percent in a move the newswires billed as corrective after the regional benchmark hit the highest level since late July 2011 yesterday. Mildly supportive comments from BOJ Governor Kuroda seemed to likewise help after the central bank chief reminded investors that monetary stimulus was aimed at ending deflation, not the exchange rate (though he acknowledged easing tends to weaken the currency).
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Asia Session:
GMT
CCY
EVENT
ACT
EXP
PREV
22:45
NZD
Food Prices (MoM) (MAR)
-1.3%
-
-0.3%
23:50
JPY
Tertiary Industry Index (MoM) (FEB)
1.1%
0.7%
-1.5% (R-)
1:30
AUD
RBA Credit Card Balances (A$) (FEB)
50.0B
-
48.7B
1:30
AUD
RBA Credit Card Purchases (A$) (FEB)
20.2B
-
19.8B
3:00
NZD
Non Resident Bond Holdings (MAR)
68.3%
-
66.70%
Euro Session:
GMT
CCY
EVENT
EXP
PREV
IMPACT
6:00
EUR
German Wholesale Price Index (MoM) (MAR)
-
0.1%
Low
6:00
EUR
German Wholesale Price Index (YoY) (MAR)
-
1.4%
Low
8:30
GBP
Construction Output (MoM) (FEB)
-
-6.3%
Low
8:30
GBP
Construction Output (YoY) (FEB)
-
-7.9%
Low
9:00
EUR
Euro-Zone Industrial Production (MoM) (FEB)
0.2%
-0.4%
Medium
9:00
EUR
Euro-Zone Industrial Production (YoY) (FEB)
-2.5%
-1.3%
Medium
Critical Levels:
CCY
SUPPORT
RESISTANCE
EURUSD
1.3049
1.3188
GBPUSD
1.5333
1.5465
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