Talking Points:
Euro Gains on 4Q GDP Data But Follow-Through May Be Limited
UofM US Consumer Confidence Gauge Expected to Fall in February
US Dollar May Rise if Soft Data Weighs on Risk Sentiment Trends
The preliminary estimate of fourth-quarter Eurozone GDP figures is expected to show growth accelerated in the three months through December 2013, with output adding 0.2 percent compared with 0.1 percent in the preceding period. Upbeat results on the analogous metrics from Germany and France – the currency bloc’s largest economies – reinforce the probability of an improvement and plant the seeds for an upside surprise.
The Euro edged higher to test above 1.37 to the US Dollar after the German print crossed the wires but lasting follow-through may be limited. Economic data matters for currency markets in terms of its implications for monetary policy, and while leading PMI data has been signaling improving growth dynamics for some time, inflation trends in the currency bloc remain anemic.
The ECB’s mandate is focused solely on price stability. That means a pickup in output absent an improvement on the price growth front (which has been the pattern over the past 10 months) won’t prevent the central bank from pursuing additional stimulus. With that in mind, we remain short EURUSD in line with our long-term fundamental outlook.
Later in the day, the spotlight turns to February’s preliminary US Consumer Confidence reading from the University of Michigan. The gauge is seen ticking lower for the second consecutive month and recording the weakest print since November. A soft outcome would suggest that the weather-attributed slowdown in US performance in December and January may be less transitory than the markets had hoped.
Such a result against the backdrop of a Federal Reserve seemingly determined to continue “tapering” QE asset purchases has scope to weigh on market sentiment. The response of the US Dollar to a negative outcome will be interesting to monitor. Short-term correlation studies between the greenback and the S&P 500 hint the benchmark currencyhas been slowly reclaiming its safe-haven credentials over the past two weeks (although the relationship remains highly inconsistent), meaning a soft print has scope to push prices higher.
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Asia Session
GMT
CCY
EVENT
ACT
EXP
PREV
21:03
NZD
REINZ House Price Index (MoM) (JAN)
-2.4%
–
-1.0%
21:03
NZD
REINZ House Sales (YoY) (JAN)
-4.3%
–
-1.1%
21:45
NZD
Food Prices (MoM) (JAN)
1.2%
–
-0.1%
1:30
CNY
Producer Price Index (YoY) (JAN)
-1.6%
-1.6%
-1.4%
1:30
CNY
Consumer Price Index (YoY) (JAN)
2.5%
2.4%
2.5%
2:00
NZD
Non Resident Bond Holdings (JAN)
63.7%
–
65.1%
European Session
GMT
CCY
EVENT
EXP/ACT
PREV
IMPACT
6:30
EUR
French GDP (YoY) (4Q P)
0.8% (A)
0.2%
Medium
6:30
EUR
French GDP (QoQ) (4Q P)
0.3% (A)
-0.1%
Medium
7:00
EUR
German GDP s.a. (QoQ) (4Q P)
0.4% (A)
0.3%
High
7:00
EUR
German GDP w.d.a. (YoY) (4Q P)
1.4% (A)
0.6%
High
9:00
EUR
Italian GDP s.a. and w.d.a. (QoQ) (4Q P)
0.1% (A)
0.0%
Medium
9:00
EUR
Italian GDP s.a. and w.d.a. (YoY) (4Q P)
-0.8% (A)
-1.8%
Medium
9:30
EUR
Italian General Government Debt (DEC)
–
2104.1B
Low
9:30
GBP
Construction Output SA (MoM) (DEC)
2.0%
-4.0%
Low
9:30
GBP
Construction Output SA (YoY) (DEC)
6.4%
2.2%
Low
10:00
EUR
Euro-Zone Trade Balance s.a. (€) (DEC)
14.4B
16.0B
Low
10:00
EUR
Euro-Zone Trade Balance (€) (DEC)
14.5B
17.1B
Low
10:00
EUR
Euro-Zone GDP s.a. (QoQ) (4Q P)
0.2%
0.1%
High
10:00
EUR
Euro-Zone GDP s.a. (YoY) (4Q P)
0.4%
-0.4%
High
Critical Levels
CCY
Supp 3
Supp 2
Supp 1
Pivot Point
Res 1
Res 2
Res 3
EUR/USD
1.3439
1.3546
1.3613
1.3653
1.3720
1.3760
1.3867
GBP/USD
1.6482
1.6562
1.6610
1.6642
1.6690
1.6722
1.6802
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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