Forex: Euro May Find Outsized Volatility in Revised Inflation Data

Talking Points:

• Aussie and NZ Dollars Rise, Yen Falls as Risk Appetite Firms in Asian Trade

• Euro May See Sharp Volatility if October’s CPI Print is Significantly Revised

• US Dollar Unlikely to Yield Strong Response to Industrial Production Data

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The Australian and New Zealand Dollars narrowly outperformed in otherwise quiet overnight trade as an empty economic calendar allowed risk trends to dominate price action. The MSCI Asia Pacific regional stock index followed Wall Street higher, adding 1.3 percent and pulling the sentiment-geared Aussie and Kiwi higher along the way. The Japanese Yen declined as the risk-on mood eroded haven demand for the safety-linked currency.

The final revision of October’s Eurozone CPI data is in focus in the hours ahead. Confirmation of the flash estimate putting the benchmark year-on-year inflation rate at 0.7 percent is expected. The preliminary number unveiled two weeks ago had a profound impact on the Euro: at the time expectations called for a print at 1.1 percent, and the deeply disappointing result sent the single currency sharply lower amid swelling bets on an expansion of ECB stimulus efforts.

Since then, the central bank has followed through with an interest rate cut, bringing its policy lending rate to a record low of 0.25 percent and driving a pivotal EUR/USD reversal. With so much recent price action seemingly linked to a single data point, the possibility of a volatile response to any significant revision is elevated. A sizable downward adjustment is likely to weigh on the Euro as investors construct expectations for further policy activism while an upgrade may help catalyze a rebound.

On the sentiment front, overnight performance in S&P 500 index futures points to directional ambiguity, with prices trading effectively flat and offering no clear-cut bias (at least for the time being). The US data docket is relatively tame. October’s Industrial Production figures take top billing, with forecasts pointing to a 0.2 percent monthly increase. That would mark the smallest gain in three months and may marginally weigh against the greenback, but strong follow-through from the US Dollar seems unlikely as the markets wait for higher-profile releases to guide Fed QE policy views.

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Asia Session:

GMT	CCY	EVENT	ACT	EXP	PREV
		None

Euro Session:

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
8:00	EUR	EU Finance Ministers Meet in Brussels	-	-	Medium
10:00	EUR	Euro-Zone CPI (MoM) (OCT)	-0.1%	0.5%	High
10:00	EUR	Euro-Zone CPI (YoY) (OCT F)	0.7%	0.7%	High
10:00	EUR	Euro-Zone CPI - Core (YoY) (OCT F)	0.8%	0.8%	High

Critical Levels:

CCY	SUPP 3	SUPP 2	SUPP 1	Pivot Point	RES 1	RES 2	RES 3
EURUSD	1.3301	1.3380	1.3421	1.3459	1.3500	1.3538	1.3617
GBPUSD	1.5828	1.5940	1.6003	1.6052	1.6115	1.6164	1.6276

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

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