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Euro May Fall as Aussie Dollar Gains if ECB Signals Rate Cuts Ahead

By , Currency Strategist
06 June 2012 08:17 GMT

Talking Points

  • Dovish ECB Rhetoric to Weigh on Euro, Boost Stocks-Linked Currencies
  • US Dollar Losses to Mount if Fed Beige Book Bolsters QE3 Expectations
  • Australian Dollar Soars as GDP Tops Forecasts, Risk Appetite Recovers

All eyes are on the European Central Bank monetary policy announcement today. The markets are pricing in the probability that the ECB remains on hold this time around despite the sharp slump in Eurozone economic growth. That puts the onus on ECB President Mario Draghi’s press conference following the announcement, with traders looking for clues of forthcoming easing in the months ahead. If dovish commentary materializes, it seems likely to weigh on the Euro, where prices are tracking benchmark yields. Such an outcome may boost risk appetite and stocks-linked currencies however considering the slump in the Eurozone represents the most significant headwind facing global growth this year.

Elsewhere on the docket, the updated set of Eurozone GDP figures is expected to confirm output growth stalled in the first quarter. A downward revision may apply a bit of downward pressure on the Euro but traders are unlikely to show directional commitment until the ECB outcome crosses the wires later in the day. Price action’s response to a drop in German Industrial Production, where output is forecast to yield the largest drawdown in four months at 1 percent, will probably follow a similar dynamic.

On the sentiment front, S&P 500 stock index futures are pointing firmly higher, hinting safe-haven currencies are likely to trade lower against most of the major counterparts. The Fed Beige Book survey of regional economic conditions is in focus on the US economic calendar. Signs of slowing momentum mirroring the recent disappointing string of data releases are likely to boost resurging QE3 expectations and compound the risk-on mood across financial markets.

The US Dollar (ticker: USDollar) and Japanese Yen fell overnight trade as Asian stocks advanced, sapping demand for the go-to haven currencies. The MSCI Asia Pacific regional benchmark equity index rose 1.2 percent after US service-sector growth accelerated while Australian first-quarter GDP figures soared past economists’ expectations. The latter release helped the Australian Dollar outperformed its major counterparts as traders trimmed RBA rate hike expectations for the coming year (according to data compiled by Credit Suisse).

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Value of All Buildings s.a. (1Q)

-0.4

2.5%

2.8% (R-)

23:01

GBP

BRC Shop Price Index (YoY) (MAY)

1.5%

1.5%

1.3%

23:01

GBP

Lloyds Business Barometer (MAY)

-21

-

26

23:15

USD

Fed's Evans to Speaks in New York

-

-

-

1:30

AUD

Gross Domestic Product (QoQ) (1Q)

1.3%

0.6%

0.6%

1:30

AUD

Gross Domestic Product (YoY) (1Q)

4.3%

3.3%

2.5%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:30

GBP

PMI Construction (MAY)

54.5

55.8

Medium

9:00

EUR

Euro-Zone Gross Domestic Product s.a. (QoQ) (1Q P)

0.0%

0.0%

Medium

9:00

EUR

Euro-Zone Gross Domestic Product s.a. (YoY) (1Q P)

0.0%

0.0%

Medium

9:00

EUR

Euro-Zone Household Consumption (QoQ) (1Q P)

0.1%

-0.5%

Low

9:00

EUR

Euro-Zone Gross Fixed Capital (QoQ) (1Q P)

-1.2%

-0.5%

Low

9:00

EUR

Euro-Zone Government Expenditure (QoQ) (1Q P)

0.1%

-0.3%

Low

10:00

EUR

German Industrial Production (MoM) (APR)

-1.0%

2.8%

Medium

10:00

EUR

German Industrial Production (YoY) (APR)

0.9%

1.6%

Medium

11:45

EUR

European Central Bank Rate Decision

1.00%

1.00%

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2394

1.2600

GBPUSD

1.5334

1.5543

--- 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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06 June 2012 08:17 GMT