Forex: Markets to Look Past European Data, Focus on Fed Commentary

Talking Points:

Quiet European Data Docket Shifts the Spotlight on Fed-Speak Roundup
US Dollar May Rise if Policymakers Hint at Continued Stimulus Reduction
Aussie and NZ Dollars, Yen Rise as Markets Digest QE Tapering Outlook

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A relatively quiet economic calendar in European trading hours puts the spotlight on a busy schedule of “Fed-speak” due in the final hour of the trading week. Charles Plosser and Jeffrey Lacker – Presidents of the Philadelphia and Richmond branches of the central bank respectively – as well as Governor Jeremy Stein and Chairman Ben Bernanke are all on the day’s docket.

Rhetoric reinforcing the likelihood of continued “tapering” of the Fed’s QE3 program in the months ahead is likely to boost the US Dollar against most of its top counterparts. A more cautious tone stressing the data dependence of near-term policy may yield the opposite effect. The rate-setting FOMC committee began to scale down stimulus in December, reducing asset purchase by a cumulative $10 billion.

The Australian and New Zealand Dollars as well as the Japanese Yen advanced in overnight trade. The move tracked a rebound in US Treasury bond futures, suggesting the move probably reflected a correction as policy-sensitive currencies digest the likely trajectory of Fed actions in 2014. Benchmark 10-year US yields pulled back from a two-year high above 3 percent and bonds recovered yesterday as markets returned from the New Year holiday, with more of the same on deck in Asia.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

1:00

CNY

Non-Manufacturing PMI (DEC)

54.6

–

56.0

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT