Forex Analysis: Euro May Weaken as ECB Outlook Boosts Rate Cut Bets

The Euro may weaken as the ECB unveils an updated set of economic projections, with sharp downside revisions likely to drive expectations for further stimulus.

Talking Points

• Euro May Weaken if ECB Growth Projections Boost Rate Cut Outlook

• BOE Monetary Policy Announcement Likely to be Another Non-Event

• Aussie Gains on Jobs Data, Kiwi Up on Hawkish Cues in RBNZ Rhetoric

The monetary policy announcements from the European Central Bank and the Bank of England headline the economic calendar in European hours. The BOE’s latest quarterly Inflation report suggests the bank is firmly in wait-and-see mode for the time being. The ECB is likewise expected to maintain the current monetary policy setting, but President Mario Draghi’s press conference following the announcement may produce some fireworks.

Euro-area economic data has performed marginally better relative to expectations since November’s rate decision, so the ECB is unlikely to feel an acute urgency to ease before year-end. With that in mind, an updated set of economic projections for the region to be unveiled at Draghi’s presser may weigh on the Euro in the event that particularly sharp downgrades see forex traders begin to build expectations for looser policy in early 2013.

The Australian and New Zealand Dollars outperformed in overnight trade. The Aussie edged higher after November’s Employment report showed the economy unexpectedly added 13,900 jobs while the unemployment rate dropped to 5.2 percent. Meanwhile, the Kiwi was buoyed by a clear hawkish shift in RBNZ rhetoric. Most critically, Governor Graeme Wheeler noted that the bank will “watch for a greater degree of inflation pressure than is assumed” as Canterbury reconstruction-driven investment picks up.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
20:00	NZD	Reserve Bank of New Zealand Rate Decision	2.50%	2.50%	2.50%
0:30	AUD	Employment Change (NOV)	13.9K	0.0K	10.2K
0:30	AUD	Unemployment Rate (NOV)	5.2%	5.5%	5.4%
0:30	AUD	Full Time Employment Change (NOV)	-4.2K	-	17.6K
0:30	AUD	Part Time Employment Change (NOV)	18.1K	-	-7.4K
0:30	AUD	Participation Rate (NOV)	65.1%	65.1%	65.2%
2:00	JPY	Tokyo Average Office Vacancies (%) (NOV)	8.76	-	8.74

Euro Session: What to Expect

GMT	CCY	EVENT	ACT/EXP	PREV	IMPACT
6:45	CHF	Unemployment Rate (NOV)	3.1% (A)	2.9%	Medium
6:45	CHF	Unemployment Rate s.a. (NOV)	3.0% (A)	3.0%	Medium
8:15	CHF	Consumer Price Index (MoM) (NOV)	-0.3% (A)	0.1%	Medium
8:15	CHF	Consumer Price Index (YoY) (NOV)	-0.4% (A)	-0.2%	Medium
9:30	GBP	Visible Trade Balance (£) (OCT)	-8650	-8368	Medium
9:30	GBP	Trade Balance Non EU (£) (OCT)	-4200	-3972	Low
9:30	GBP	Total Trade Balance (£) (OCT)	-3000	-2699	Low
10:00	EUR	Euro-zone GDP s.a. (QoQ) (3Q P)	-0.1%	-0.1%	Medium
10:00	EUR	Euro-zone GDP s.a. (YoY) (3Q P)	-0.6%	-0.6%	Medium
10:00	EUR	Euro-zone Household Consumption (QoQ) (3Q P)	-0.2%	-0.4%	Low
10:00	EUR	Euro-zone Gross Fixed Capital (QoQ) (3Q P)	-0.8%	-1.5%	Low
10:00	EUR	Euro-zone Government Expenditure (QoQ) (3Q P)	0.0%	0.0%	Low
11:00	EUR	German Factory Orders s.a. (MoM) (OCT)	1.0%	-3.3%	Medium
11:00	EUR	German Factory Orders n.s.a. (YoY) (OCT)	-5.6%	-4.7%	Medium
12:00	GBP	Bank of England Rate Decision (DEC 6)	0.50%	0.50%	High
12:00	GBP	BoE Asset Purchase Target (DEC)	375B	375B	High
12:45	EUR	European Central Bank Rate Decision (DEC 6)	0.75%	0.75%	High
12:45	EUR	ECB Deposit Facility Rate (DEC 6)	0.00%	0.00%	Medium
13:30	EUR	ECB’s Draghi Holds Press Conference	-	-	High

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.3043	1.3110
GBPUSD	1.6080	1.6136

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

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

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