Forex: Euro May Fall on Soft PMIs, Yen Gains on Pre-FOMC Jitters

Ilya Spivak

Talking Points:


  • Euro May Fall if a Disappointing PMI Data Set Drives ECB Stimulus
  • Yen Rallies, Aussie Falls as Pre-FOMC Jitters Trigger Risk Aversion
  • Fundamental Support for “Tapering” Fed QE Appears to be in Place


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The preliminary set of December’s Eurozone PMI figures headlines the economic calendar in European hours. The region-wide composite gauge is expected to edge slightly higher to 51.9 compared with 51.7 in the prior month. Euro-area economic news flow has underperformed relative to consensus forecasts over recent weeks (according to data from Citigroup), opening the door for downside surprises. Such an outcome is likely to weigh on the Euro as traders build out expectations for an expansion of ECB stimulus in 2014. We are holding short EUR/USD.


The safe-haven Japanese Yen outperformed while the sentiment-sensitive Australian Dollar came under heavy selling pressure as risk aversion swept financial markets overnight. The MSCI Asia Pacific regional benchmark stock index fell 0.6 percent in a move likely linked to jitters ahead of this week’s FOMC monetary policy announcementas traders ponder the possibility of a move to “taper” QE asset purchases. A disappointing Chinese Manufacturing PMI print from HSBC helped amplify the sour mood. S&P 500 futures are pointing firmly lower ahead of the opening bell in Europe, hinting at more of the same ahead.


The foundation for scaling down the Fed’s stimulus appears to be in place. Fiscal drag fears – already on the decline since end of the government shutdown in mid-October – appear to have all but faded after Congress secured a two-year budget deal last week. Meanwhile, US economic data has increasingly outperformed relative to market forecasts since the beginning of November. Finally, near-term inflation expectations have started to perk up, with the 1-year breakeven rate (a measure of the price growth outlook priced into bond yields) surging in late November to the highest level since mid-April.



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Asia Session:


GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

Westpac NZ Consumer Confidence (4Q)

120.1

-

115.4

21:30

NZD

Performance Services Index (NOV)

56.3

-

57.7

23:50

JPY

Tankan Large Manuf. Index (4Q)

16

15

12

23:50

JPY

Tankan Large Manuf. Outlook (4Q)

14

17

11

23:50

JPY

Tankan Non- Manuf. Index (4Q)

20

16

14

23:50

JPY

Tankan Non- Manuf. Outlook (4Q)

17

19

14

23:50

JPY

Tankan Large All Industry Capex (4Q)

4.6%

5.5%

5.1%

23:50

JPY

Tankan Small Manuf. Index (4Q)

1

-7

-9

23:50

JPY

Tankan Small Manuf. Outlook (4Q)

-1

-5

-5

23:50

JPY

Tankan Small Non-Manuf. Index (4Q)

4

1

-1

23:50

JPY

Tankan Small Non-Manuf. Outlook (4Q)

1

2

-2

0:01

GBP

Rightmove House Prices (MoM) (DEC)

-1.9%

-

-2.4%

0:01

GBP

Rightmove House Prices (YoY) (DEC)

5.4%

-

4.0%

1:45

CNY

HSBC/Markit Flash Manuf. PMI (DEC)

50.5

50.9

50.8

4:00

JPY

Tokyo Condominium Sales (YoY) (NOV)

22.3%

-

21.4%



Euro Session:


GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:00

EUR

French PMI Manufacturing (DEC P)

49.0

48.4

Medium

8:00

EUR

French PMI Services (DEC P)

48.7

48.0

Medium

8:30

EUR

German PMI Manufacturing (DEC A)

53.0

52.7

Medium

8:30

EUR

German PMI Services (DEC A)

55.3

55.7

Medium

9:00

EUR

Euro-Zone PMI Manufacturing (DEC A)

51.9

51.6

High

9:00

EUR

Euro-Zone PMI Services (DEC A)

51.5

51.2

High

9:00

EUR

Euro-Zone PMI Composite (DEC A)

52.0

51.7

High

10:00

EUR

Euro-Zone Trade Balance s.a. (€) (OCT)

14.5B

14.3B

Low

10:00

EUR

Euro-Zone Trade Balance (€) (OCT)

15.0B

13.1B

Low



Critical Levels:


CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.3620

1.3680

1.3711

1.3740

1.3771

1.3800

1.3860

GBPUSD

1.6114

1.6211

1.6256

1.6308

1.6353

1.6405

1.6502



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


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