Euro and Yen Could get a Boost on Soft US Data

Points to consider in this market:

• Spotlight will be on US retail sales and the University of Michigan consumer confidence today.
• Soft US news and firm bets on a Fed raising rates next week could lead to risk aversion.
• Euro and yen to get a boost. Australian Dollar will decline if risk sentiment reverses.

There will not be a lot of news coming out of Europe today, so the spotlight will shift to the data coming out of the United States. The US will release November’s retail sales as well as the University of Michigan consumer confidence for December. It is expected that both will improve.

Global financial markets and even the Forex markets have already priced in the probability of a Federal Reserve Board (Fed) rate hike next week at their monthly Federal Open Markets Committee (FOMC) policy meeting. Todays economic new is unlikely to put a dent into sentiment or change trader’s opinions on what should happen next week. That is a Fed liftoff.

However, we could see the implications for risk regarding today’s data move the markets. As of late, the US news feed has softened. This has open the gates for the possibility of underperformance with today’s data release.  This, thanks to traders placing firm bets on a rate hike next week, could spark fears of growth, thus feeding risk aversion in the Forex markets. This means that sentiment will be dented with the Australian Dollar and a boost can be seen with both the euro and the yen.

Overnight, the AUD/USD pushed lower after Australia showed a sharp spike higher with November’s strong employment data release. This hurt the chances of a Reserve Bank of Australia (RBA) rate cut. The USD/JPY also faced some selling pressure. Not shockingly, as the yen gained, so did the headline stock bourse in Japan. The Nikkei 225 rose as money left the safety of the ever wanted safety-linked USD/JPY market.

Both of these moves come as the US Dollar is showing a broad based recovery. The Dollar looks to be moving upward as investors reposition holdings getting ready for next week’s FOMC meeting. The US Dollar index hit a monthly low yesterday.