Dollar Gains On Spain Rating Cut, US GDP Report On Tap Ahead

By Ilya Spivak, Currency Strategist

Talking Points

  • Dollar, Yen Gain on Haven Demand as S&P Cuts Spain’s Credit Rating
  • US GDP Report May Force FX Markets to Rethink Likelihood of QE3
  • Italian Bond Yields on Returning Credit Stress Ahead of Debt Auction

The US Dollar (ticker: USDollar ) and Japanese Yen outperformed in overnight as Asian stocks declined, boosting demand for the go-to safe haven currencies, after Standard & Poor’s cut Spain’s sovereign credit rating and assigned it a negative outlook, saying a recession will undermine the government’s ability to reduce the budget deficit. Eurozone crisis fears overshadowed would-be downward pressure on the Yen after the Bank of Japan expanded its stimulus efforts by a cumulative ¥10 trillion yen , broadly in line with market expectations.

Futures tracking key European stock indexes and the S&P 500 are sharply lower, hinting the risk-averse is set to carry forward into Wall Street trade. On the data calendar, the focus is first-quarter US Gross Domestic Product figures, where expectations point to a 2.5 percent annualized quarterly increase after a 3 percent rise in the three months through December.

The result is likely to be interpreted in the context of this week’s FOMC policy meeting, with a better-than-expected outcome carrying the possibility of reminding traders that Ben Bernanke’s commentary was hardly as supportive of QE3 as traders’ initial reaction suggested . Alternatively, a disappointing print will further fuel stimulus bets and may renewed downward pressure on the greenback.

Elsewhere, an Italian bond auction will be interesting to watch as Eurozone debt crisis fears heat up anew. Rome is scheduled to sell a tranche of 2016-2022 debt, with investors keeping a close eye on average yield levels to gauge the severity of returning funding stress. The spread between yields on benchmark German 10-year bonds and Italian equivalents rose 14bps ahead of the sale, tapping a three-month high at 410bps.

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:15

JPY

Markit/JMMA Manufacturing PMI (APR)

50.7

-

51.1

23:30

JPY

Jobless Rate (MAR)

4.5%

4.5%

4.5%

23:30

JPY

Job-To-Applicant Ratio (MAR)

0.76

0.76

0.75

23:30

JPY

Overall Household Spending (YoY) (MAR)

3.4%

4.1%

2.3%

23:30

JPY

National CPI YoY (MAR)

0.5%

0.4%

0.3%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (MAR)

0.2%

0.1%

0.1%

23:30

JPY

National CPI Ex Food, Energy (YoY) (MAR)

-0.5%

-0.5%

-0.6%

23:30

JPY

Tokyo CPI (YoY) (APR)

-0.3%

-0.1%

-0.1%

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (APR)

-0.5%

-0.3%

-0.3%

23:30

JPY

Tokyo CPI Ex Food, Energy (YoY) (APR)

-1.0%

-0.9%

-1.0%

23:50

JPY

Industrial Production (MoM) (MAR P)

1.0%

2.3%

-1.6%

23:50

JPY

Industrial Production (YoY) (MAR P)

13.9%

15.6%

1.5%

23:50

JPY

Retail Trade (YoY) (MAR)

10.3%

10.0%

3.4% (R-)

23:50

JPY

Retail Trade s.a. (MoM) (MAR)

-1.2%

-0.5%

2.0%

23:50

JPY

Large Retailers’ Sales (MAR)

5.0%

7.2%

0.2%

1:30

CNY

Industrial Profits YTD (YoY) (MAR)

-1.3%

-

-5.2%

1:35

CNY

MNI Business Confidence Survey (APR)

56.04

55.40

54.81

3:46

JPY

Bank of Japan Rate Decision

0.10%

0.10%

0.10%

4:00

JPY

Vehicle Production (YoY) (MAR)

143.7%

-

19.70%

5:00

JPY

Construction Orders (YoY) (MAR)

-0.3%

-

-1.80%

5:00

JPY

Annualized Housing Starts (MAR)

0.848M

0.875M

0.917M

5:00

JPY

Housing Starts (YoY) (MAR)

5.0%

8.2%

7.5%

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German GfK Consumer Confidence Survey (MAY)

5.9

5.9

Low

6:00

EUR

German Import Price Index (MoM) (MAR)

-

1.0%

Low

6:00

EUR

German Import Price Index (YoY) (MAR)

-

3.5%

Low

6:45

EUR

French Producer Prices (MoM) (MAR)

0.6%

0.8%

Low

6:45

EUR

French Producer Prices (YoY) (MAR)

4.0%

4.3%

Low

6:45

EUR

French Consumer Spending (MoM) (MAR)

-1.9%

3.0%

Low

6:45

EUR

French Consumer Spending (YoY) (MAR)

-0.2%

0.5%

Low

7:00

CHF

KOF Swiss Leading Indicator (APR)

0.2

0.08

Medium

8:00

EUR

Retail Sales s.a. (MoM) (FEB)

-0.2%

0.7%

Low

8:00

EUR

Retail Sales (YoY) (FEB)

-1.9%

-0.8%

Low

9:00

EUR

Italy to Sell 2016-2022 Bonds

-

-

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3097

1.3256

GBPUSD

1.6136

1.6209

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

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me on Twitter at @IlyaSpivak

To be added to Ilya 's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2012/04/27/Dollar_Gains_on_Spain_Rating_Cut_US_GDP_Report_on_Tap_Ahead.html