FOREX: Dollar Selling to Continue as Chinese Data Lifts Stock Futures | Learn Forex | GoLearnForex.com

Overnight Headlines

• Australian, NZ Dollars Rise as Chinese Data Boosts Risk Appetite
• Bank of Japan Keeps Ratesat 0.10%, Unveils New Lending Program

Critical Levels

The Euro added 0.2 percent against the US Dollar in overnight trade, capitalizing on broad-based selling of the safe-haven currency, but gains were kept modest by lingering sovereign debt fears. The British Pound outperformed the single currency, rising as much as 0.3 percent ahead of what is forecast to be a strong UK CPI reading, but the report’s supportive powers seem inherently limited (see below).

Euro Session: What to Expect

UK Consumer Price Index figures headline the economic calendar, with expectations calling for the headline inflation rate to remain at a 30-month high of 4.5 percent in May. The outcome’s implications for interest rate hike expectations – and thereby for the British Pound – appear limited however considering the Bank of England has clearly indicated it is prepared for a price growth rate north of 5 percent over the short term, dismissing it as owing to temporary factors and arguing that medium-term price stability remains secure. In fact, there is some indication that the markets are in agreement, with UK 5-year breakeven rates – a measure of investors’ inflation expectations derived from bond yields – trending broadly lower since early April.

On the sentiment front, another supportive batch of Chinese economic data (see below) has produced dramatic gains across stock index futures tracking key European and US equities benchmarks, pointing to a continued recovery risk appetite and promising losses for the safety-linked US Dollar and Japanese Yen against their leading counterparts. Futures tracking the S&P 500 – the go-to proxy for global shares at large – added as much as 0.8 percent ahead of the opening bell in Europe.

Asia Session: What Happened

The Australian and New Zealand Dollars outperformed after Chinese Industrial Production slowed for the third consecutive month, with output adding 13.3 percent in the year through May, while Retail Sales fell short of expectations to add 16.9 percent over the same period. Meanwhile, Consumer Price Index figures showed inflation accelerated in line with expectations to 5.5 percent, marking the first month in four that the outcome did not top economists’ forecasts.

Traders interpreted the outcomes as indicating that Beijing has scope to ease its aggressive campaign to slow the pace of economic expansion – a key policy goal over recent months amid fears the East Asian giant was overheating – reinforcing yesterday’s similarly understood new loans and money supply figures. As we wrote then, China is the world’s second-largest economy and a key importer of commodities so a reduced need to further restrict growth offered an understandable lift to the currencies of raw materials exporters.

The Bank of Japan unanimously voted to keep its benchmark interest rate on hold at 0.10 percent while leaving the size of its credit-loan program and asset-purchase fund unchanged at 30 trillion and 10 trillion yen respectively, all as expected. Policymakers also unveiled a new lending program worth 500 billion yen to companies “without normal collateral”. Otherwise, the bank sounded a cautiously positive tone, saying the economy shows some signs of picking up and will return to a moderate recovery in the second half of the current fiscal year.

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