Euro May Rise as 4Q GDP Data Triggers Short-Covering

Talking Points:

Better-Than-Expected 4Q Eurozone GDP Print May Trigger Euro Recovery
US Dollar May Decline if UofM Confidence Data Falls Short of Expectations
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The preliminary set of fourth-quarter Eurozone GDP figures headlines the economic calendar in European trading hours. Output is expected to expand by 0.2 percent, matching the increase recorded in the three months through September and keeping the year-on-year growth rate steady at 0.8 percent.

News-flow from the currency bloc have increasingly outperformed relative to consensus forecasts over recent weeks. This hints that analysts are over-estimating the degree of malaise plaguing the region and opening the door for an upside surprise.

While such an outcome won’t dismiss the longer-term bearish outlook of the ECB’s on-coming launch of quantitative easing (QE), it may offer a reason to initiate short-covering on bets against the single currency, producing a near-term Euro rebound. Indeed, data from CFTC shows net speculative short positions are at their highest since June 2012.

Later in the day, the spotlight will turn to February’s University of Michigan gauge of US consumer confidence. The index is expected to hold unchanged at 98.1, matching an eleven-year high recorded in the prior month.

Contrary to the Euro area, realized data outcomes out of the US have increasingly trailed behind consensus forecasts. This warns of a disappointing print that may weigh on the US Dollar amid moderating Fed rate hike bets. Technical positioning likewise warns of a downside scenario.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

21:45

NZD

Food Prices (MoM) (JAN)

1.3%

–

0.3%

2:00

CNY

Conference Board Leading Index (JAN)

311.4

–

311.6

2:00

NZD

Non Resident Bond Holdings (JAN)

65.8%

–

65.0%

European Session

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CCY

EVENT

EXP/ACT

IMPACT