Talking Points:

Euro May Not Find Lasting Support from Upbeat German IFO Survey
US New Home Sales Data to Offer Limited Pre-FOMC Direction Cues
Yen Falls as Canadian, Aussie and NZ Dollars Recover in Asian Trade

Germany’s IFO Survey of business confidence headlines the economic calendar in European trading hours. Expectations call for the headline Business Confidence index to rise for a third consecutive month to hit the highest level since July 2011. An upbeat result may not offer a meaningful boost to the Euro however.

Improving sentiment over recent months has coincided with a sharp dovish shift in priced-in ECB monetary policy expectations (as tracked by Credit Suisse). That hints that businesses’ chipper mood could be reflecting hopes that Mario Draghi and company are preparing to expand stimulus efforts, a prospect that hardly bodes well for the single currency.

Later in the day, the spotlight turns to December’s US New Home Sales report, with a print at 455,000 expected. While this would mark the lowest reading in three months, such an outcome would still fall above the 12-month trend average. As such, it seems unlikely to meaningfully unhinge status-quo Fed policy expectations and as such may pass with little fanfare.

The Japanese Yen underperformed while the Australian, Canadian and New Zealand Dollars proved best-supported in overnight trade. These moves stood in contrast to risk-averse dynamics gripping Asian stocks, where regional exchanges took their cues from Friday’s sharp Wall Streetselloff. That hints performance in the FX space reflected a correction in the context of last week’s price action. Indeed the so-called “commodity dollars” tracked S&P 500 futures higher while the Yen traded inversely of the active contract tracking the US equity benchmark.

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