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EUR: The German IFO data is one of the key releases in the monthly cycle of Eurozone data.   The market expects a small increase in the headline reading (from 105.7 to 105.9), but the single currency will be sensitive to any reading away from here, with a weaker number having the potential to put the euro on a softer footing at the start of the week.

Forex Analysis: EUR/USD Extends Decline towards 1.3000 and Lower

USD:  The data is light today, with the Dallas Fed data not one to impact dollar. Dallas Fed President Fisher speaks in London later in the day.

Idea of the Day

The dollar is starting the week on a firmer footing, with the Aussie once again taking most of the strain in this move. The question markets will be asking themselves this week is whether the reaction to the Fed last week was overdone. For FX, the best way to judge this is by looking at emerging market currencies, where the reaction was most pronounced last week. India, Russia and Turkey seeing their currencies between 1.5% and 3.5% lower vs. the dollar.

If we see some signs of turn-around here, then we could be shaping up for a week when the dollar stabilises and Fed fears recede. On the majors, such as the yen and Aussie, the moves seen have served to further enhance the recent (for the Aussie) and longer-term (for the yen) trends which investors seem broadly comfortable with, so the impetus to fight the Fed on these pairs is a lot weaker.

Latest FX News

JPY:   It could be a long week for the yen, waiting for the CPI, jobs and production data scheduled for Friday.   BoJ governor Kuroda was sounding bullish on the economy last week, but so far it’s been too early to start seeing the signs of adjustment in the inflation numbers that the authorities so crave.

CAD:   Weaker CPI data (rising 0.7% YoY) saw a bunch of stops triggered once USDCAD had budged through the previous year’s high of 1.0421, with a high at 1.0489 reached during the European afternoon.  

AUD: There were some signs of life on the Aussie during Friday, but considering the extent of the sell-off seen on Thursday, they were relatively muted. It’s clear that the prospect of lower official rates in Australia, concerns over China and the likely ‘tapering’ from the Fed is proving to be a toxic combination for the Aussie.   Fresh pressure is being seen early in the European session.