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Dollar Falls on Stimulus Hopes in Asia, More of the Same Hinted Ahead

By , Currency Strategist
05 June 2012 07:05 GMT

Talking Points

  • Euro May Find Near-Term Pressure in Final Round of PMI Revisions
  • US Dollar Sold as Stocks Rise on Fed Stimulus Hopes in Asian Trade
  • Aussie Dollar Gains as RBA Delivers Relatively Modest 25bps Rate Cut
  • S&P 500 Index Futures Point to Continued Recovery in Risk Appetite

Final revisions of May’s services and composite Eurozone PMI data are in focus in European hours. The region-wide print is expected to confirm that manufacturing- and service-sector activity contracted at the fastest pace in nearly three years. Separately, Eurozone Retail Sales and German Factory Orders are both expected to show monthly declines in April. Taken together, the outcomes may apply a bit of downward pressure on the Euro as traders begin to build ECB rate cut expectations but follow-through seems unlikely with the policy announcement just around the corner, suggesting traders will want to wait for concrete dovish cues from Mario Draghi and company before pushing the single currency downward anew.

On the sentiment front, S&P 500 stock index futures are pointing higher in late Asian trade, hinting a recovery in risk appetite is likely to continue to weigh on the haven currencies in the coming hours. The US ISM Non-Manufacturing Composite gauge comes into focus later in the session. Median forecasts call for a print at 53.5 in May, matching April’s result. As with yesterday’s Factory Orders reading, an outcome in line with expectations is unlikely to spark fireworks but a disappointing result may compound downward pressure on the Dollar in the context of the QE3-driven theme at play this week.

The US Dollar and Japanese Yen fell against their top counterparts in overnight trade as Asian stocks advanced, sapping demand for the go-to safe haven currencies. The MSCI Asia Pacific regional benchmark equity index rose 1.4 percent. As we suspected yesterday, improving sentiment followed a disappointing US Factory Orders print that buoyed speculation about a possible third round of Federal Reserve quantitative easing (QE3). The Australian Dollar outperformed as expected after the RBA delivered a 25bps rate cut coupled with a policy statement that did not offer clear guidance on future easing efforts.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

AUD

AiG Performance of Service Index (MAY)

43.5

-

39.6

1:30

AUD

Current Account Balance (A$) (1Q)

-14892M

-14850M

-9639M (R-)

1:30

AUD

Australia Net Exports of GDP (1Q)

-0.5%

-0.7%

0.3%

2:30

CNY

China HSBC Services PMI (MAY)

54.7

-

54.1

4:30

AUD

Reserve Bank of Australia Rate Decision

3.50%

3.50%

3.75%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

7:45

EUR

Italian PMI Services (MAY)

42.0

42.3

Low

7:50

EUR

French PMI Services (MAY F)

45.2

45.2

Low

7:55

EUR

German PMI Services (MAY F)

52.2

52.2

Medium

8:00

EUR

Euro-Zone PMI Composite (MAY F)

45.9

45.9

Medium

8:00

EUR

Euro-Zone PMI Services (MAY F)

46.5

46.5

Medium

9:00

EUR

Euro-Zone Retail Sales (MoM) (APR)

-0.1%

0.3%

Medium

9:00

EUR

Euro-Zone Retail Sales (YoY) (APR)

-1.1%

-0.2%

Medium

10:00

EUR

German Factory Orders s.a. (MoM) (APR)

-1.1%

2.2%

Medium

10:00

EUR

German Factory Orders n.s.a. (YoY) (APR)

-3.8%

-1.3%

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2341

1.2544

GBPUSD

1.5308

1.5419

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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05 June 2012 07:05 GMT