Overnight Headlines

  • NZ Dollar Drops After FinMin Says Second-Half Recession Possible
  • UK Shop Price Index Bolsters Hawkish Outlook Ahead of BOE Meeting
  • Australian Consumer Confidence Recovered in February, Says Westpac

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3592

1.3688

GBPUSD

1.6005

1.6139

The Euro edged higher in overnight trade, adding as much as 0.2 percent against the US Dollar. The British Pound was little changed, oscillating in a choppy range above 1.6050 to the greenback. We maintain a bearish bias on EURUSD and GBPUSD.

Asia Session: What Happened

CCY

GMT

EVENT

ACT

EXP

PREV

NZD

21:45

NZ Card Spending (MoM) (JAN)

2.4%

-

-0.8% (R+)

USD

22:00

ABC Consumer Confidence

-46

-40

-41

AUD

23:30

Westpac Consumer Confidence (FEB)

1.9%

-

-5.7%

AUD

23:30

Westpac Consumer Confidence Index (FEB)

106.6

-

104.6

GBP

0:01

BRC Shop Price Index (JAN)

2.5%

-

2.1%

JPY

2:00

Tokyo Avg Office Vacancies (%) (JAN)

9.04%

9.81%

CNY

2:30

China HSBC Services PMI (JAN)

52.0

-

53.1

JPY

5:00

Consumer Confidence (JAN)

41.1

-

40.2

JPY

5:00

Consumer Confidence Households (JAN)

41.1

40.3

40.1

JPY

6:00

Machine Tool Orders (YoY) (JAN P)

89.4%

-

64%

The New Zealand Dollar slumped against its top counterparts, down as much as 0.6 percent against its US namesake, after Finance Minister Bill English said it is possible the island nation sank back into recession in the second half of last year. The economy shrank 0.2 percent in the third quarter; if growth declined again in the three months through December, New Zealand would be by definition in recession. English added that the normal drivers of economic recovery appear to be absent, with consumers saving harder and paying off debt quicker that [the government expected]. A selloff on Asian stock exchanges compounded selling pressure on the risk-linked currency, with the MSCI Asia Pacific regional benchmark equity index down 0.8 percent in the wake of yesterday's Chinese rate hike as well as news that growth in the Asian giant's service sector slowed for the second in three months having printed flat in December.

UK Shop Prices added 2.5 percent in year to January, marking the fastest growth rate in at least eight months, according to a report from the British Retail Consortium. Food inflation led the gauge higher, with prices rising at an annualized pace of 4.6 percent, the fastest in 19 months. BRC Director General Stephen Robertson said retailersgenerally took the hit [from rising input costs] on behalf ofcustomers...but with a range of other cost pressures also squeezing margins, retailers willstruggle to go on absorbing it. This adds to speculation that stubborn headline inflation will nudge the Bank of England toward the hawkish end of the policy spectrum at this week's monetary policy announcement.

Australian Consumer Confidence recovered a bit according to Westpac Banking Corp, adding 1.9 percent in February having dropped the most in eight months in January. Westpac chief economist Bill Evans called the result a modest rebound [following] the strong reaction to the floods in the preceding month. Evans added that the bounce in sentiment may have been stronger if not for downward pressure amid fears of Cyclone Yasi, which featured prominently in the news cycle at the time the survey was conducted.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

EUR

7:00

German Exports s.a. (MoM) (DEC)

1.0%

0.5%

Low

EUR

7:00

German Imports s.a. (MoM) (DEC)

0.8%

4.1%

Low

EUR

7:00

German Current Account (€) (DEC)

14.0B

12.0B

Low

EUR

7:00

German Trade Balance (€) (DEC)

12.0B

12.9B

Medium

EUR

7:45

French Survey of Industrial Investments

-

-

Low

GBP

9:30

Visible Trade Balance (£) (DEC)

-8600

-8736

Medium

GBP

9:30

Trade Balance Non EU (£) (DEC)

-4875

-5028

Low

GBP

9:30

Total Trade Balance (£) (DEC)

-4000

- 4123

Low

A quiet economic calendar in European hours is likely to keep the focus on risk sentiment, with the key points of interest being a speech from European Financial Stability Facility Chairman Klaus Reglingas well as testimony from Federal Reserve Chairman Ben Bernanke. Traders will look to the former remarks to glean any clues on the EFSF's ability to safeguard against a sovereign default in its present state after fissures in the regional consensus about the bailout fund's expansion emerged this week.

Meanwhile, Bernanke is unlikely to significantly deviate from his familiar message, saying the Fed continues to inflation as too low and unemployment as too high and so will press on with QE2 until its scheduled expiry in June, but markets will be paying close attention to any fine-tuning in the rhetoric in light of last week's drop in the jobless rate. As we discussed in our weekly trends monitor, markets took the outcome as a positive development, but the central bank chief may pour cold water on lingering optimism considering the decline came courtesy of the lowest labor force participation since 1984, not of robust hiring.

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