Forex: US Dollar Looks to Fed-Speak to Guide QE Taper Outlook
Talking Points:
US Dollar, Yen Fall as China Rates Drop Stokes Risk Appetite in Asia
Kiwi Dollar Outperforms as Third-Quarter Jobs Data Tops Expectations
Stock Futures Hint at Risk-On Mood Ahead, Fed-Speak in the Spotlight
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The US Dollar and Japanese Yen underperformed in overnight trade as a pick-up in risk appetite dented demand for the stand-by safe haven currencies. The MSCI Asia Pacific regional benchmark stock index and S&P 500 futures seemed to begin accelerating higher in earnest at about 3:30 GMT, just as China announced the daily fix for the SHIBOR lending rate. The baseline 7-day measure fell to 3.866 percent, the lowest in two weeks, easing fears of a credit squeeze that investors worried would hamper growth in Asia’s largest economy.
The New Zealand Dollar outperformed after third-quarter labor market data topped economists’ expectations. The report showed employment grew 1.2 percent, marking the strongest performance in over five years and trumping median forecasts calling for a 0.5 percent gain. The unemployment rate fell to 6.2 percent and the participation rate soared to 68.6 percent, reinforcing the strong print on the headline reading. Traders took the outcome as supportive of robust RBNZ interest rate hike expectations slated for next year. Indeed, data from Credit Suisse shows markets are pricing in 86 basis points in tightening over the coming 12 months.
The Euro and the British Pound edged higher on the back of supportive UK Industrial Production and German Factory Orders data. The former report showed output grew 0.9 percent in September while the latter revealed orders jumped 3.3 percent over the same period. Both measures produced the strongest performance in three months, weighing against dovish policy bets ahead of this week’s ECB and BOE rate decisions.
Looking ahead, US stock index futures continue to point firmly higher ahead of the opening bell on Wall Street, hinting the risk-on dynamics seen in Asian and early European trade are likely to carry forward. The US economic calendar is fairly quiet, with September’s Leading Index print amounting to the only bit of noteworthy data-linked event risk.
The influence of “Fed-speak” may come into play however as Cleveland Fed President Sandra Pianalto takes to the wires to discuss the state of the housing market and the overall economy amid continued speculation about the timing of the first cutback in QE3 asset purchases. Rhetoric suggesting October’s US government shutdown didn’t materially alter policymakers’ intent to “taper” stimulus or lengthen the timeline to begin doing so in an outsized way may boost the US Dollar and weigh on risk sentiment anew.
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Asia Session:
GMT | CCY | EVENT | ACT | EXP | PREV |
21:45 | Employment Change (QoQ) (3Q) | 1.2% | 0.5% | 0.4% | |
21:45 | NZD | Employment Change (YoY) (3Q) | 2.4% | 1.6% | 0.7% |
21:45 | NZD | Participation Rate (QoQ) (3Q) | 68.6% | 68.0% | 68.1% |
21:45 | NZD | Unemployment Rate (3Q) | 6.2% | 6.2% | 6.4% |
21:45 | NZD | Average Hourly Earnings (QoQ) (3Q) | 1.6% | 1.4% | 0.4% |
21:45 | NZD | Private Wages ex Overtime (QoQ) (3Q) | 0.4% | 0.5% | 0.4% |
21:45 | NZD | Labor Cost Private Sector (QoQ) (3Q) | 0.4% | 0.5% | 0.5% |
23:50 | BOJ October 3-4 Meeting Minutes | - | - | - | |
0:01 | BRC Shop Price Index (YoY) (OCT) | -0.5% | 0.1% | -0.2% | |
0:30 | Trade Balance (A$) (SEP) | -284M | -500M | -693M |
Euro Session:
GMT | CCY | EVENT | EXP/ACT | PREV | IMPACT |
8:00 | GBP | Halifax House Price (3M/Y) (OCT) | 6.9% (A) | 6.2% | Medium |
8:00 | GBP | Halifax Plc House Prices s.a. (MoM) (OCT) | 0.7% (A) | 0.4% | Medium |
8:45 | Italian PMI Services (OCT) | 50.5 (A) | 52.7 | Low | |
8:50 | EUR | French PMI Services (OCT F) | 50.9 (A) | 50.2 | Low |
8:55 | EUR | German PMI Services (OCT F) | 52.9 (A) | 52.3 | Medium |
9:00 | EUR | Euro-Zone PMI Services (OCT F) | 51.6 (A) | 50.9 | Medium |
9:00 | EUR | Euro-Zone PMI Composite (OCT F) | 51.9 (A) | 51.5 | Medium |
9:30 | GBP | Industrial Production (MoM) (SEP) | 0.9% (A) | -1.1% | Medium |
9:30 | GBP | Industrial Production (YoY) (SEP) | 2.2% (A) | -1.5% | Medium |
9:30 | GBP | Manufacturing Production (MoM) (SEP) | 1.2% (A) | -1.2% | Low |
9:30 | GBP | Manufacturing Production (YoY) (SEP) | 0.8% (A) | -0.2% | Low |
10:00 | EUR | Euro-Zone Retail Sales (MoM) (SEP) | -0.6% (A) | 0.5% | Low |
10:00 | EUR | Euro-Zone Retail Sales (YoY) (SEP) | 0.3% (A) | -0.2% | Low |
11:00 | EUR | German Factory Orders n.s.a. (YoY) (SEP) | 7.9% (A) | 3.1% | Medium |
11:00 | EUR | German Factory Orders s.a. (MoM) (SEP) | 3.3% (A) | -0.3% | Medium |
Critical Levels:
CCY | SUPP 3 | SUPP 2 | SUPP 1 | Pivot Point | RES 1 | RES 2 | RES 3 |
1.3334 | 1.3408 | 1.3441 | 1.3482 | 1.3515 | 1.3556 | 1.3630 | |
1.5791 | 1.5905 | 1.5975 | 1.6019 | 1.6089 | 1.6133 | 1.6247 |
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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