Key Overnight Developments

  •  US Dollar Gains as Stocks Drop in Asia, Fueling Safety Demand
  •  Aussie, NZ Dollars Drop as Chinese GDP Stokes Rate Hike Fears
  •  NZ Inflation Hits 2-Year High but Fails to Boost RBNZ Outlook

Critical Levels

EURUSD SUPPORT: 1.3408 RESISTANCE: 1.3519

GBPUSD SUPPORT: 1.5847 RESISTANCE: 1.6014

The Euro and the British Pound fell as much as 0.3 and 0.5 percent against the US Dollar in overnight trade, with the greenback capitalizing on safety-driven demand to broadly advance against the major as Asian shares slumpedfollowing China’s GDP report (see below). We remain short EURUSD.

 

Asia Session Highlights

 

CCY

GMT

EVENT

ACT

EXP

PREV

NZD

21:45

Consumer Prices Index (QoQ) (4Q)

2.3%

2.4%

1.1%

NZD

21:45

Consumer Prices Index (YoY) (4Q)

4.0%

4.1%

1.5%

AUD

0:00

Consumer Inflation Expectation (JAN)

4.6%

-

2.8%

CNY

2:00

Industrial Production YTD (YoY) (DEC)

15.7%

15.5%

15.8%

CNY

2:00

Industrial Production (YoY) (DEC)

13.5%

13.4%

13.3%

CNY

2:00

Consumer Price Index (YoY) (DEC)

4.6%

4.6%

5.1%

CNY

2:00

Producer Price Index (YoY) (DEC)

5.9%

5.7%

6.1%

CNY

2:00

Real Gross Domestic Product (YoY) (4Q)

9.8%

9.4%

9.6%

CNY

2:00

GDP Year-to-Date (YoY) (4Q)

10.3%

10.2%

10.6%

CNY

2:00

Fixed Assets Inv Urban YTD (YoY) (DEC)

24.5%

25.0%

24.9%

CNY

2:00

Retail Sales (YoY) (DEC)

19.1%

18.7%

18.7%

CNY

2:00

Retail Sales YTD (YoY) (DEC)

18.4%

18.4%

18.4%

NZD

2:00

ANZ Consumer Confidence Index (JAN)

117.1

-

112.2

JPY

5:00

Leading Index (NOV F)

100.6

-

101

JPY

5:00

Coincident Index (NOV F)

102.4

-

102.1

 

The Australian and New Zealand Dollars underperformed in overnight trade, posting average losses of 0.4 and 0.6 percent respectively against their top counterparts as Chinese Gross Domestic Product figures boosted expectations that authorities in Beijing will step up efforts to cool the buoyant economy amid fears of asset bubbles and runaway inflation. China is a key export market for both economies. The GDP report showed the Asian giant added 9.8 percent in the year through the fourth quarter, topping forecasts calling for a 9.4 percent increase. A downtick on China’s Consumer Price Index inflation gauge failed to offset rate hike fears, with the drawdown well within the range of similar outcomes within the larger uptrend carved out over the past 17 months.

New Zealand Consumer Price Index figures failed to underpin the currency even as the annual inflation rate soared to 4 percent the fourth quarter, the highest since the three months through September 2008. The outcome failed to stoke rate hike bets, with a Credit Suisse gauge of priced-in tightening expectations over the coming year edging 2bps lower to the lowest in six days following the report. The lackluster response followed comments from New Zealand Finance Minister Bill English, who said that after stripping out the recent sales tax hikes, “annual inflation stayed around 2 percent in calendar 2010 and is forecast to remain relatively muted for the foreseeable future.”

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

EUR

7:00

German Producer Prices (MoM) (DEC)

0.5%

0.2%

Medium

EUR

7:00

German Producer Prices (YoY) (DEC)

4.9%

4.4%

Medium

JPY

7:00

Convenience Store Sales (YoY) (DEC)

-

1.1%

Low

EUR

9:00

Italian Industrial Sales n.s.a. (YoY) (NOV)

-

13.3%

Low

EUR

9:00

Italian Industrial Sales s.a. (MoM) (NOV)

-

1.0%

Low

EUR

9:00

Italian Industrial Orders n.s.a. (YoY) (NOV)

14.8%

12.4%

Low

EUR

9:00

Italian Industrial Orders s.a. (MoM) (NOV)

1.4%

0.0%

Low

CHF

10:00

ZEW Survey (Expectations) (JAN)

-

-12.5

Medium

GBP

11:00

CBI Trends Total Orders (JAN)

-1

-3

Medium

GBP

11:00

CBI Business Optimism (JAN)

3

2

Low

 

The economic calendar looks quiet in European hours, with risk sentiment likely to make a comeback as a key driver of price action after fading from view over recent weeks. Indeed, short-term correlation studies reveal that the inverse relationship between the US Dollar Index and the MSCI World Stock Index has strengthened considerably once again, registering at the strongest in a month.

With this in mind, the greenback looks poised to rise on safety demand as European stock index futures point sharply lower ahead of the opening bell, mirroring what traders saw in Asia on the back of stronger Chinese GDP figures. The markets appear to be interpreting the result as a negative for global growth on expectations it will drive Beijing to step up efforts to restrain the overheating economy.