Euro in focus ahead of GDP releases

The main theme in the FX space was US dollar strength as the US once again delivered a positive economic release.

This time it was in the form of retail sales, which showed a 0.5% (versus 0.4% expected) increase in the core reading and a 0.2% rise in the headline reading (which was relatively in line with consensus). This saw the G10 currencies offered against the greenback as the dollar index gained 0.5%, with one of the most significant moves being in USD/JPY.

 

Atlanta Fed president Dennis Lockhart was also on the wires, reinforcing what we have heard from other Fed members regarding tapering by the end of this year. After a long period of underperformance, USD/JPY seems to be back in its stride and rallied through 98 to a high of ¥98.34. Perhaps reports that Prime Minister Abe is considering lowering corporate tax rates to counter the sales tax hike will continue to gain momentum and underpin a USD/JPY rally. Near term targets for USD/JPY are in the 98.80 region.

 

AUD/USD is hanging around the 0.91 level today and there isn’t much to look out for on the calendar, with just the Westpac consumer sentiment and wage price index data due out. With limited releases on the local front this week, focus will remain on the USD side of the equation and how QE tapering expectations shape up.

 

GBP/USD remained relatively sidelined after CPI and PPI data came in line with consensus. The pair is hanging around $1.545 and could possibly come across some volatility later today with the claimant count change, MPC asset purchase facility votes, MPC official bank rate votes, average earnings index and the unemployment rate.

 

EUR/USD experienced a steep slide to a low of 1.323 and finally breached support at 1.33. The pair has recovered to around 1.325 in Asia and will be in focus later today with some fairly big releases due out of Europe. GDP figures for France, Germany and the eurozone will be released, while French non-farm payrolls and CPI will also be in focus. The market is looking to see if Europe has exited its recession, with expectations currently for a 0.2% rise in GDP. Over in the US, St Louis Fed president Bullard will be on the wires and any further rhetoric about tapering is likely to keep the USD bid in the near term.

 

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