Euro Looks to French Budget, Spanish Stress Tests for Direction Cues

DailyFX

The Euro may pull back into the end of the trading week as governments’ deficit-fighting efforts and slower inflation spur expectations for additional ECB stimulus.

Talking Points

  • Euro May Falter if Fiscal Consolidation, Disinflation Spur ECB Stimulus Bets
  • US Dollar Sold Overnight as Spanish Budget Optimism Lingers in the FX Space

The economic calendar is relatively tame in European hours, with the spotlight likely to remain on Spain as the country releases bank stress test results. These will help price the assets to be transferred to so-called “bad banks” as part of the EU bailout of the country’s lenders. Traders will look to the release to gauge whether the €100 billion pledged by the regional bloc to rescue effort will prove sufficient.

France is also due to release the details of its 2013 budget. Economists expect the government will run a deficit equivalent to 4.6 percent of GDP this year, the highest among the core members of the Eurozone. With that in mind, President Francois Hollande and company may be forced to press on with tax hikes and/or spending cuts, both of which amount to a further headwind for already anemic growth.

A particularly punishing budget may begin to feed expectations for ECB stimulus to offset retrenchment on the fiscal side of the policy landscape, weighing on the Euro. A softer Eurozone CPI reading could reinforce such a dynamic. Expectations call for the headline inflation rate to slow to 2.4 percent in September from 2.6 percent in the prior month.

The US Dollar declined against its top counterparts in overnight trade as the risk-on mood seen in US hours carried into the Asian session. The chipper tone followed news the release of Spain’s 2013 budget, with the administration of Prime Minister Mariano Rajoy announcing an ambitious set of measures to bring the nation’s fiscal house in order. The New Zealand Dollar outperformed, adding as much as 0.4 percent on average against the majors.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Building Permits (MoM) (AUG)

1.9%

3.0%

2.0%

23:01

GBP

GfK Consumer Confidence Survey (SEP)

-28

-28

-29

23:15

JPY

Nomura/JMMA Manufacturing PMI (SEP)

48

-

47.7

23:30

JPY

National CPI (YoY) (AUG)

-0.4%

-0.5%

-0.4%

23:30

JPY

National CPI Ex Food, Energy (YoY) (AUG)

-0.5%

-0.5%

-0.6%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (AUG)

-0.3%

-0.3%

-0.3%

23:30

JPY

Tokyo CPI Ex Food, Energy (YoY) (SEP)

-1.1%

-0.9%

-0.9% (R-)

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (SEP)

-0.4%

-0.3%

-0.5%

23:30

JPY

Tokyo CPI (YoY) (SEP)

-0.7%

-0.6%

-0.7%

23:30

JPY

Jobless Rate (AUG)

4.2%

4.3%

4.3%

23:30

JPY

Job-To-Applicant Ratio(AUG)

0.83

0.83

0.83

23:30

JPY

Household Spending (YoY) (AUG)

1.8%

1.1%

1.7%

23:50

JPY

Retail Trade s.a. (MoM) (AUG)

1.5%

-0.3%

-1.5%

23:50

JPY

Industrial Production (MoM) (AUG P)

-1.3%

-0.5%

-1.0%

23:50

JPY

Industrial Production (YoY) (AUG P)

-4.3%

-3.4%

-0.8%

23:50

JPY

Large Retailers' Sales(AUG)

-0.9%

-1.7%

-4.4%

23:50

JPY

Retail Trade (YoY) (AUG)

1.8%

-0.3%

-0.7% (R+)

1:30

AUD

Private Sector Credit (MoM) (AUG)

0.2%

0.3%

0.2%

1:30

AUD

Private Sector Credit (YoY) (AUG)

4.1%

4.3%

4.2%

1:35

CNY

MNI September Business Sentiment Indicator

51.35

-

47.54

3:00

NZD

Money Supply M3 (YoY) (AUG)

7.2%

-

7.1% (R-)

4:00

JPY

Vehicle Production (YoY) (AUG)

4.5%

-

16.7%

5:00

JPY

Annualized Housing Starts (AUG)

0.888M

0.872M

0.870M

5:00

JPY

Construction Orders (YoY) (AUG)

8.7%

-

8.0%

5:00

JPY

Housing Starts (YoY) (AUG)

-5.5%

-7.5%

-9.6%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

5:30

EUR

French Gross Domestic Product (QoQ) (2Q F)

0.0%

0.0%

Medium

5:30

EUR

French Gross Domestic Product (YoY) (2Q F)

0.3%

0.3%

Medium

6:00

EUR

German Retail Sales (MoM) (AUG)

0.2%

-1.0%

Medium

6:00

EUR

German Retail Sales (YoY) (AUG)

-0.9%

-1.0%

Medium

6:45

EUR

French Consumer Spending (YoY) (AUG)

-0.7%

0.2%

Low

6:45

EUR

French Consumer Spending (MoM) (AUG)

-0.3%

0.1%

Low

6:45

EUR

French Producer Prices (MoM) (AUG)

0.6%

-0.9%

Low

6:45

EUR

French Producer Prices (YoY) (AUG)

2.0%

1.3%

Low

7:00

CHF

KOF Swiss Leading Indicator (SEP)

1.50

1.57

Medium

8:00

EUR

Italian PPI (YoY) (AUG)

2.5%

2.4%

Low

8:00

EUR

Italian PPI (MoM) (AUG)

0.3%

0.4%

Low

8:30

GBP

Index of Services (MoM) (JUL)

1.5%

-1.7%

Low

8:30

GBP

Index of Services (3Mo3M) (JUL)

0.1%

-0.1%

Low

9:00

EUR

Euro-Zone CPI Estimate (YoY) (SEP)

2.4%

2.6%

Medium

9:00

EUR

Italian CPI - EU Harmonized (YoY) (SEP P)

2.7%

2.7%

Low

9:00

EUR

Italian CPI - EU Harmonized (MoM) (SEP P)

1.3%

0.0%

Low

9:00

EUR

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

-0.1%

0.4%

Low

9:00

EUR

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

3.1%

3.2%

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2852

1.2989

GBPUSD

1.6182

1.6297

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

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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