The Euro moved higher overnight, testing above the 1.48 level. Sterling retraced some of the heavy losses seen in US hours, rising to re-test the 1.84 level. Australian Private Capital Expenditure surprised to the upside, printing at 5.7% in the second quarter versus 2.0% expected. Tonight’s calendar is laden with Euro Zone economic data releases, though forex traders are unlikely to see them produce substantial deviations from established themes. Interestingly, recent weeks have seen the Euro under pressure even though monetary easing seems far from imminent. This could suggest that price action is attempting to guide the ECB, acting as if the bank will soon be compelled to cut rates sooner.
Key Overnight Developments
• Australian capital investment more-than-doubles expectations on Chinese demand
• Euro pushes higher, testing the 1.48 level
Critical Levels
The Euro moved higher overnight, testing above the 1.48 level. DailyFX Senior Currency Strategist Jamie Saettele expects the Euro to reach 1.4850 by the end of this week. Support is seen at 1.4640. Sterling retraced some of the heavy losses seen in US hours, rising to re-test the 1.84 level. Support is found at 1.8262 while resistance stands at 1.8465.
Asia Session Highlights
A typically uneventful calendar offered a bit of a surprise overnight as Australian Private Capital Expenditure surprised to the upside, printing at 5.7% in the second quarter versus 2.0% expected. The uptick owed to continued buoyancy in the mining industry. Companies continued to aggressively expand capacity to meet seemingly insatiable Chinese demand for Australian coal and iron ore exports. The Australian Dollar responded strongly, jumping 32 pips in the first 5 minutes following the release and added another 36 pips over the course of the next hour. The market ignored deterioration in June’s Conference Board Leading Index as the news was both backward-looking and largely expected.
Euro Session: What to Expect
Although tonight’s calendar is heavily laden with economic data releases, traders are unlikely to see them produce substantial deviations from established macroeconomic themes driving the forex market. Although German’s Unemployment Rate is expected to remain unchanged at 7.8% in August, the Euro Zone’s largest economy is expected to lose another 10k jobs. Last week saw decline in preliminary readings of the Euro Zone’s August Purchasing Manager’s Index, suggesting today’s Bloomberg’s Retail PMI releases are likely to move lower. This makes sense: retailers’ sentiment is unlikely to see optimism as European consumers weigh up the slowing economy and tighten their belts ahead of the lean period ahead. To that effect, Euro Zone Consumer Confidence is expected to stay at -20 in August, the lowest in 5 years. Indeed, Retail Sales fell -0.7% in July and is likely to do to so again in August.
All told, the picture is a familiar one at this point. Traders are acutely aware of that the quickly deteriorating economic situation in the Euro Zone, with the operative question now being: “When will the ECB cut rates?” Today’s pseudo-hawkish comments by ECB policymaker Axel Weber fell largely on deaf ears as Germany’s preliminary Consumer Price Index figures revealed considerable cooling. Italy’s Producer Price Index is likely to follow suit, with expectations calling for the monthly growth rate to slow to 0.5% in July after printing at 0.8% in June following a near-20% drop in the price of crude oil. The market is pricing in at least one cut in the next 12 months, with initial expectations calling for the move to come in the second quarter of next year. Although this suggests monetary easing is far from imminent, the Euro has remained under considerable selling pressure. This dynamic could suggest that forex traders are attempting to guide the ECB, acting as if the bank will soon be compelled to change the game plan and cut rates sooner. It will not be the first time that the market has swayed policymakers in its favor, and it is unlikely to be the last.
In the UK, Nationwide House Prices are expected to extend loses to print at -9.6% in the year to August. The metric came out at an annualized -8.1% in the preceding month. This is consistent with the protracted housing slump that has gripped the UK in recent months.
Switzerland’s Employment Level reading is expected to see the pace of jobs growth to slow to 2.1% from 2.8% in the second quarter. Writing of the likely direction of the mountain nation’s economy in the second half of the year, we had previously written that “acute deterioration in top EU countries will not go unnoticed – the regional bloc is the destination for 60% of all Swiss exports.” Slowing demand for Swiss goods will see companies cut back capacity, leading to a softening in labor market conditions.
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