Overnight Headlines

  •  Australian Dollar Sold as Inflation Rate Falls to Slowest in a Year
  •  Yen Unmoved as BOJ Maintains Policy, Cuts FY2011 Outlook
  •  British Pound Declines Ahead of UK Gross Domestic Product Data

Critical Levels

 EURUSD SUPPORT: 1.3570 RESISTANCE: 1.37773

GBPUSD SUPPORT: 1.5944 RESISTANCE: 1.6075

The Euro tracked sideways in overnight trade, oscillating in a 50-pip range around the 1.3650 level to the US Dollar. The British Pound saw lackluster price action for much of the session but prices broadly declined late in Asian hours ahead of the fourth quarter UK GDP report due at 9:30 GMT (see below), with the currency shedding as much as 0.3 percent against the greenback.

Asia Session: What Happened

CCY

GMT

EVENT

ACT

EXP

PREV

21:30

NZD

Performance Services Index (DEC)

52.5

-

51.7 (R+)

23:00

AUD

Conference Board Leading Index (NOV)

0.3%

-

0.6%

0:30

AUD

Consumer Prices Index (QoQ) (4Q)

0.4%

0.7%

0.7%

0:30

AUD

Consumer Prices Index (YoY) (4Q)

2.7%

3.0%

2.8%

0:30

AUD

RBA Trimmed Mean (QoQ) (4Q)

0.3%

0.7%

0.6%

0:30

AUD

RBA Trimmed Mean (YoY) (4Q)

2.2%

2.6%

2.5%

0:30

AUD

RBA Weighted Median (QoQ) (4Q)

0.5%

0.7%

0.5%

0:30

AUD

RBA Weighted Median (YoY) (4Q)

2.3%

2.5%

2.4%

3:29

JPY

Bank of Japan Rate Decision (JAN 25)

-

0.10%

0.10%

 

The Australian Dollar tumbled against all of its top counterparts – sliding 0.5 percent on average – after fourth-quarter Consumer Price Index figures printed sharply below economists’ expectations, weighing on the outlook for RBA rate hikes. The annualized inflation rate slid to 2.7 percent, the lowest in a year. The slowdown may prove temporary however, with Australian Treasurer Wayne Swan saying a spike in food prices will boost the headline inflation in the first quarter of 2011 after the data crossed the wires.

The Bank of Japan voted unanimously to keep benchmark borrowing costs unchanged in the 0-0.25 percent range. Policymakers also maintained the size of the asset-purchase fund and credit-loan program unchanged at 5 trillion and 30 trillion yen, respectively. The bank repeated now familiar rhetoric, saying economic recovery “seems to be pausing” and promising to “pursue powerful monetary easing”.

While the BOJ upgraded its outlook for growth and inflation in the current fiscal year, the outlook for 2011 proved less rosy. Indeed, GDP is now seen expanding 1.6 percent versus 1.8 percent forecast in October. Headline inflation is expected to rise 0.3 percent over the same period, but the increase is seen owing to rising commodity prices rather than a pickup in economic activity. The JapaneseYen was little changed after the outcome.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

7:00

EUR

German GfK Consumer Confidence Survey (FEB)

5.4

5.4

Low

7:00

CHF

UBS Consumption Indicator (DEC)

-

1.63

Low

7:45

EUR

French Consumer Spending (MoM) (DEC)

0.4%

2.8%

Low

7:45

EUR

French Consumer Spending (YoY) (DEC)

0.5%

1.5%

Low

9:30

GBP

Gross Domestic Product (QoQ) (4Q A)

0.5%

0.7%

High

9:30

GBP

Gross Domestic Product (YoY) (4Q A)

2.6%

2.7%

High

9:30

GBP

Index of Services (3Mo3M) (NOV)

0.5%

0.6%

Low

9:30

GBP

Index of Services (MoM) (NOV)

0.8%

-0.4%

Low

9:30

GBP

Public Finances (PSNCR) (£) (DEC)

16.3B

16.8B

Medium

9:30

GBP

Public Sector Net Borrowing (£) (DEC)

20.0B

22.8B

Medium

9:30

GBP

PSNB ex Interventions (DEC)

18.0B

23.3B

Medium

 

PreliminaryUK Gross Domestic Product figures headline the economic calendar, with expectations calling for the annual growth rate to tick slightly lower to 2.6 percent in the fourth quarter. As we discussed in our weekly trend monitor, the outcome may prove supportive for the British Pound despite the downtick, amounting to the second consecutive quarter of expansion above the average long-term growth rate (2.3 percent). This may help stoke the Bank of England rate hike outlook going into the release of minutes from the central bank’s January policy meeting due later this week, with pressure clearly mounting on Mervyn King and company to address the stubbornly high inflation rate after yearly CPI growth hit an eight-month high in December.

Turning to the Euro Zone, the spotlight will fall on Spain as the debt-saddled country auctions off up to 3 billion euro in three- and six-month debt. Recent bond sales from the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) – the poster-children for the currency bloc’s sovereign debt fiasco – have been relatively well-received. This hints a successful outcome may carry relatively limited implications for Euro price action, with the currency being far more sensitive to a disappointing result considering such an outcome would amount to a deviation from established trading patterns.

Later in the session, traders will be treated to the first batch of US data from this week’s packed economic calendar, with an uptick on January’s Consumer Confidence gauge hinting at forthcoming Dollar-supportive upward pressure on US Treasury yields. On the earnings front, 33 S&P 500 companies are due to report results, with 22 releases due before the closing bell in Europe.