The Euro is at risk as CPI data threatens to reinforce dovish comments from ECB President Draghi while the Yen looks to the US GDP report to guide risk appetite trends.

Talking Points

Euro at Risk if Soft German CPI Data Drives ECB Easing Outlook
Japanese Yen Looks to US GDP Report to Guide Sentiment Trends
Aussie, NZ Dollars Rise as Risk Appetite Firms in Overnight Trade

The preliminary set of February German CPI data is in focus in European hours. Expectations call for the year-on-year inflation rate to hold at 1.7 percent, unchanged from the prior month. A downside surprise may weigh particularly heavily on the Euro after yesterday’s comments from ECB President Mario Draghi, who said the central bank was far from abandoning its accommodative posture. With that in mind, a drop in inflation may stoke easing expectations, undercutting yield-based support for the single currency.

Later in the day, the spotlight shifts to revised fourth-quarter US GDP figures. Economists’ forecasts point to a revision higher, showing the economy added 0.5 percent. Initial estimates showed output shrank 0.1 percent. The outcome is likely to be interpreted in the context of the looming “sequester” spending cuts set to trigger on Friday. A relatively firm result is likely to boost risk appetite amid hopes the world’s top economy will be able to withstand another dose of austerity, weighing on the Japanese Yen. Needless to say, a soft outcome threatens to yield the opposite result.

The Australian and New Zealand Dollars outperformed in overnight trade as Asian stocks advanced, boosting demand for the sentiment-linked high yielders. The MSCI Asia Pacific regional benchmark added 1.4 percent in a move the news-wires chalked up to follow-through after another strong day of US housing data and the official nomination of dovish Asian Development Bank President Haruhiko Kuroda to take over as Governor of the Bank of Japan.

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