FOREX: Euro Bounce May Find Added Fuel in Flash PMI Data | Learn Forex | GoLearnForex.com

Talking Points

• US Dollar Mostly Flat in Overnight Trade, Aussie Underperforms
• Eurozone PMI Figures Likely to Support Corrective Euro Bounce
• S&P 500 Futures Down, Hinting at Possible Lifeline for US Dollar

The US Dollar (Ticker: USDollar) consolidated against its leading counterparts in overnight trade, with the major pairs little changed heading into the European opening bell. The Australian Dollar underperformed, down as much as 0.4 percent against its leading counterparts, ahead of tomorrow’s Consumer Price Index report. Economists’ forecasts call for the annual inflation rate to drop to 3.3 percent in the fourth quarter, marking the lowest reading since the three months through March of last year, an outcome that may boost expectations for an interest rate cut early next month. The Bank of Japan kept its monetary policy mix unchanged as widely expected, yielding no significant reaction from price action.

Looking ahead, the focus turns to January’s preliminary set of Eurozone PMI figures, with consensus forecasts calling for narrow improvements. The region-wide composite PMI reading is expected to rise to 48.5 in January from 48.3 in the previous month, meaning both the manufacturing and service sectors shrank at a slower pace. While this hardly sounds like something that ought to make investors overly cheerful, the results offer a bit of additional fodder for the corrective Euro rebound to continue as over-stretched net-short positioning is unwound ahead of next week’s EU leaders’ summit (which likely explains the sanguine response to continued impasse on Greek PSI negotiations). Speculative bets on Euro weakness hit another record high last week according to data from the CFTC.

On the sentiment front, S&P 500 stock index futures are pointing lower to hint at forthcoming risk aversion that may offer support to the safe-haven greenback. Fourth-quarter earnings reports from 18 companies within the benchmark US equities gauge are due before the close of European trade, with FX traders likely to focus on firms’ guidance for the coming year rather than late-2011 results to gauge the extent to which the Eurozone debt fiasco is expected to disrupt performance going forward. A Spanish debt auction is also on tap, with Madrid set to sell a trance of 84- and 175-day bills.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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