Talking Points
- Commodity Dollars Outperform in Asia on China Stimulus Hopes
- Euro Risks Skewed to the Upside Before German Inflation Figures
- US Consumer Confidence, Dallas Fed Prints May Weigh on USD
The major currencies were little changed against the US Dollar (ticker: USDollar) overnight as thin post-holiday liquidity conditions and the absence of market-moving cues from economic data or risk sentiment trends left FX traders without a significant catalyst to spark volatility. The Australian, Canadian and New Zealand Dollars narrowly outperformed as Asian stocks advanced, pulling the sentiment-linked currencies along for the ride. The MSCI Asia Pacific regional benchmark equity index added 0.9 percent after China’s finance ministry said it will allocate up to 2 billion Yuan per year to subsidize purchases of fuel-efficient cars, raising hopes the spend ing injection will boost growth.
Looking ahead to European trading hours, the preliminary set of May’s German CPI figures is in focus. Expectations call for the headline inflation rate to hold at 2.1 percent. A print in line with expectations will mean little for ECB policy expectations and so seems unlikely to produce fireworks from price action. Indeed, given the scope of aggressive Euro selling over recent weeks, the risks appear skewed to the upside in the event that an upside surprise offers a compelling excuse to drive profit-taking. France and Italy are set to hold bond auctions, but short tenor of the debt on offer (see below) means the results may pass with little fanfare.
Later in the day, the focus will turn to the US economic calendar. May’s Consumer Confidence reading and the Dallas Fed Manufacturing Activity gauge are on tap, with expectations pointing to improvements on both fronts. Broadly speaking, data collected by Citigroup suggests US economic data has stabilized relative to expectations in May after three months of deterioration. This lays the foundation for stronger outcomes to buoy hopes that a firming (albeit unevenly so) recovery in North America can help offset weakness in Europe and Asia.
In the context of heavy selling across the risky asset space over recent weeks, this may help drive a recovery in sentiment, weighing on the safe-haven greenback against most of its top counterparts. USDJPY may prove to be an exception in this regard, where stronger US data is likely to translate into Dollar strength on the back of rising Treasury bond yields and fading QE3 expectations. SP 500 stock index futures are pointing firmly higher in late Asian hours, reinforcing the likelihood of a risk-on scenario in the hours ahead.
Asia Session: What Happened
Euro Session: What to Expect
Critical Levels
--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com
To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak
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