Forex: Dollar May Extend Rebound as Markets Rethink QE Taper Timing

DailyFX

Talking Points

  • Japanese Yen Outperformed as Risk Appetite Floured on FOMC Outcome in Asia
  • Euro May Decline if Flash CPI Print Disappoints, Driving ECB Easing Outlook
  • US Dollar May Extend Gains as Jobless Claims Data Informs Fed “Taper” Bets

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The Japanese Yen outperformed in overnight trade, rising as much as 0.4 percent on average against its top counterparts, as risk appetite soured and drove demand for the safe-haven currency. Asian stocks followed Wall Street lower after the Federal Reserve disappointed the markets’ hopes for a meaningful dovish shift in official rhetoric, as expected. The New Zealand Dollar underperformed after the RBNZ hinted that the elevated exchange rate may limit scope for interest rate hikes planned for next year.

The preliminary set of October’s Eurozone CPI figures headlines the economic calendar in European trading hours. Expectations call for the headline year-on-year inflation rate to remain at 1.1 percent, unchanged from the prior month. A disappointing result on the analogous report from Germany yesterday opens the door for a downside surprise, which may put the Euro under pressure as traders consider the implications of shrinking price growth on ECB policy expectations.

Later in the day, the spotlight turns back to the US as markets digest yesterday’s FOMC outcome. The weekly Jobless Claims data set is expected to show initial applications for jobless benefits fell to the lowest in a month. The status-quo tone of the Fed policy statement suggests traders probably overestimated the extent to which policymakers would delay stimulus reduction in the wake of October’s US government shutdown. The emergence of firm US news-flow stands to reinforce this idea and may help drive the US Dollar higher while weighing on sentiment-linked currencies. Indeed, S&P 500 futures are pointing sharply lower in late overnight trade, hinting the path of least resistance favors risk aversion in the hours ahead.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

20:00

NZD

RBNZ Interest Rate Decision

2.50%

2.50%

2.50%

21:45

NZD

Building Permits (MoM) (SEP)

1.4%

-

1.5%

23:15

JPY

Markit/JMMA Manufacturing PMI (OCT)

54.2

-

52.5

0:00

NZD

ANZ Business Confidence (OCT)

53.2

-

54.1

0:00

NZD

ANZ Activity Outlook (OCT)

47.1

-

45.3

0:05

GBP

GfK Consumer Confidence (OCT)

-11

-8

-10

0:30

AUD

Import Price Index (QoQ) (3Q)

6.1%

3.5%

-0.3%

0:30

AUD

Export Price Index (QoQ) (3Q)

4.2%

3.3%

-0.3%

0:30

AUD

Private Sector Credit (MoM) (SEP)

0.3%

0.4%

0.3%

0:30

AUD

Private Sector Credit (YoY) (SEP)

3.3%

3.4%

3.4%

0:30

AUD

Building Approvals (MoM) (SEP)

14.4%

2.8%

-1.6%

0:30

AUD

Building Approvals (YoY) (SEP)

18.6%

1.2%

11.1%

1:30

JPY

Labor Cash Earnings (YoY) (SEP)

0.1%

-0.4%

-0.9%

2:00

NZD

Money Supply M3 (YoY) (SEP)

7.3%

-

6.5%

4:14

JPY

BOJ 2014 Monetary Base Target

¥270T

¥270T

¥270T

5:00

JPY

Housing Starts (YoY) (SEP)

19.4%

12.5%

8.8%

5:00

JPY

Annualized Housing Starts (SEP)

1.044M

0.983M

0.960M

5:00

JPY

Construction Orders (YoY) (SEP)

89.8%

-

21.4%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

EUR

German Retail Sales (MoM) (SEP)

-0.4% (A)

-0.2%

Medium

7:00

EUR

German Retail Sales (YoY) (SEP)

0.2% (A)

0.4%

Medium

7:00

GBP

Nationwide House Prices s.a. (MoM) (OCT)

1.0%(A)

0.9%

Low

7:00

GBP

Nationwide House Prices n.s.a. (YoY) (OCT)

5.8%(A)

5.0%

Low

7:00

EUR

German GfK Consumer Confidence (NOV)

7.0 (A)

7.1

Low

7:00

EUR

German Import Price Index (MoM) (SEP)

0.0% (A)

0.1%

Low

7:00

EUR

German Import Price Index (YoY) (SEP)

-2.8%(A)

-3.4%

Low

9:00

EUR

Italian Unemployment Rate (SEP P)

12.3%

12.2%

Low

10:00

EUR

Euro-Zone Unemployment Rate (SEP)

12.0%

12.0%

Medium

10:00

EUR

Euro-Zone CPI Estimate (YoY) (OCT)

1.1%

1.1%

High

10:00

EUR

Euro-Zone CPI - Core (YoY) (OCT A)

1.0%

1.0%

High

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3561

1.3650

1.3693

1.3739

1.3782

1.3828

1.3917

GBPUSD

1.5881

1.5960

1.5999

1.6039

1.6078

1.6118

1.6197

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

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