Wednesday, February 16, 2011

EURUSD – sales weaker, yields stalled=?UTF-8?B?4oCm?=

US retail sales rose by 0,3% m/m in January (both headline and core)
– weaker than expected by the market (0,5% m/m). Even though sales
is still running at around 8% annually, weaker data was an defense for
the fixed income market to take a breath after a strong rise in
yields. A significant rise in yields (over 50 bps for FRA18x24 in a
span of two weeks) pushed the dollar up against the euro and yen so
the data released yesterday provided an opportunity for some profit
taking.

*…the dollar needs stronger output and inflation*

While the market still does not focus on the euro crisis, the US data
needs to be strong for the decline on the EURUSD to continue. While
the key releases are scheduled for Thursday (CPI and claims),
today's figures will play a role as well. Output, housing starts and
especially PPI may influence market expectations ahead of the CPI
report. Moreover, a PPI might be seen as a gauge of future trends in a
consumer inflation as higher prices of commodities (ranging from
industrials to food) seem less and less a temporary phenomenon. Even
if the data doesn't support the dollar, the technical picture will
remain favorable for the USD for as long as the pair remains below the
line drawn along recent highs (close to 1,3650 at the moment).

*Events to watch – US data and minutes, labor market and inflation
report in UK, US fuel inventory data*

US data on PPI (consensus +0,8% m/m, +0,2% for the core) and starts
(consensus 540k for starts and 560k for permits) will be released at
8.30 ET, 14.30 CET and the output data (consensus +0,5% m/m) will be
released at 9.15 ET, 15.15 CET. Investors will also await the minutes
from the Fed meeting (2 PM ET, 20.00 CET) generally expecting a dovish
tone.

After an in-line rise in the UK's CPI (to 4% in January), interest
rates expectations will be further shaped by the unemployment data
(4.30 ET, 10.30 CET, consensus -3k) and the inflation report (5.30 ET,
11.30 CET) today. US fuel inventories are scheduled for today (10.30
ET, 16.30 CET) as well.

Source: Fxstreet.com

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