Key Overnight Developments

  • US Dollar Hits 3-Week High on Safety Demand as Stocks Decline
  • Australian Dollar Falls as RBA Chief Talks Down Rate Hike Bets
  • NZ Dollar Looks Past Mixed Data, Declines Amid Risk Aversion

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3473

1.3667

GBPUSD

1.6001

1.6129

The Euro and the British Pound sold off in overnight trade, down 0.4 and 0.2 percent respectively against the US Dollar as the greenback surged to a three-week high on safe-haven demand (see below). We maintain a bearish bias on EURUSD and GBPUSD.

Asia Session Highlights

CCY

GMT

EVENT

ACT

EXP

PREV

NZD

21:45

Food Prices (MoM) (JAN)

1.8%

-

-0.8%

NZD

2:00

Non Resident Bond Holdings (JAN)

63.3%

-

62.4% (R+)

NZD

2:30

REINZ Housing Price Index (JAN)

3119.8

-

3201.6

NZD

2:30

REINZ Housing Price Index (MoM) (JAN)

-2.6%

-

-0.6%

NZD

2:30

REINZ Housing Price Index (YoY) (JAN)

-11.3%

-

-11.3%

The US Dollar outperformed in overnight trade adding as much as 0.3 percent on average against its major counterparts as stocks dropped for at third day across Asian exchanges, driving demand for the safety-linked currency. The MSCI Asia Pacific regional benchmark index fell 1.5 percent after Egypt's President Hosni Mubarak unexpectedly refused to step down (see below).

The New Zealand Dollar bore the brunt of the greenback's advance, down as much as 0.7 percent, as the slump in sentiment weighed heavily on the risk-correlated currency. The Australian Dollar likewise tumbled, down against most of its major counterparts after RBA Governor Glenn Stevens told a parliamentary panel that interest rates were above average, adding the central bank ahead of the game on monetary policy and was not contemplating another hike for now.

On the data front, New Zealand House Prices fell 2.6 percent to the lowest in 19 months while Food Prices accelerated, adding 1.8 percent in January to mark the largest increase since October.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

EUR

7:00

German Consumer Price Index (YoY) (JAN F)

1.9%

1.9%

Medium

EUR

7:00

German Consumer Price Index (MoM) (JAN F)

-0.5%

-0.5%

Medium

EUR

7:00

German CPI - EU Harmonised (YoY) (JAN F)

2.0%

2.0%

Medium

EUR

7:00

German CPI - EU Harmonised (MoM) (JAN F)

-0.5%

-0.5%

Medium

EUR

7:00

German Wholesale Price Index (YoY) (JAN)

-

9.5%

Low

EUR

7:00

German Wholesale Price Index (MoM) (JAN)

-

1.8%

Low

EUR

7:45

French Non-Farm Payrolls (QoQ) (4Q P)

-

0.1%

Low

EUR

7:45

French Current Account (€) (DEC)

-

-4.2B

Low

EUR

7:45

French Wages (QoQ) (4Q P)

0.3%

0.3%

Low

GBP

9:30

Producer Price Index Input (MoM) (JAN)

1.4%

3.4%

Low

GBP

9:30

Producer Price Index Input (YoY) (JAN)

12.7%

12.5%

Low

GBP

9:30

Producer Price Index Output (MoM) (JAN)

0.5%

0.5%

Medium

GBP

9:30

Producer Price Index Output (YoY) (JAN)

4.4%

4.2%

Medium

GBP

9:30

Producer Price Index Output Core (MoM) (JAN)

0.3%

0.2%

Low

GBP

9:30

Producer Price Index Output Core (YoY) (JAN)

3.0%

2.9%

Low

Risk sentiment looks set to dominate currency market price action into the end of the trading week, with Egypt back in the headlines after President Hosni Mubarak refused to step down, offering the token gesture of transferring some powers to newly-minted Vice President Omar Suleiman instead. The protesters were clearly not placated by Mubarak's actions, with intelligence firm Stratfor forecasting that the most likely course of events from here is a military coup to remove the embattled president. Markets have clearly taken notice of the tense environment, with stock index futures tracking key European exchanges firmly lower ahead of the opening bell and pointing toward continued strength for the safety-linked US Dollar and Swiss Franc.

UK Producer Price Index figures areexpected to show the annual pace of wholesale inflation accelerated to 4.4 percent in January, the fastest in six months. The release may not garner much attention however after yesterday's Bank of England policy announcement proved to be another non-event, shifting the spotlight to next week's publication of the quarterly Inflation Report that served as the basis for the policy decision. Meanwhile, the final revision of January's German Consumer Price Index figures is set to confirm the annual inflation rate at 1.9 percent.

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