The Euro fell sharply overnight as Asian markets responded to the turnaround in crude oil and other commodities seen in late Friday trading. Sterling followed, selling off to test the 1.84 level. The calendar is noticeably empty going into the European session, suggesting forex traders will continue to look to other markets for directional momentum.
Key Overnight Developments
• New Zealand Food Prices Fall Sharply in July, Support RBNZ Rate Cuts
• Euro, Pound Fall Sharply in Overnight Trading
Critical Levels
The Euro fell sharply overnight as Asian markets responded to the turnaround in crude oil and other commodities seen in late Friday trading. DailyFX Senior Currency Strategist Jamie Saettele expects the Euro to correct to at least 1.4980 before downside momentum resumes. Sterling followed the Euro to sell off below the 1.85 level. Support is seen at 1.8312 with resistance at 1.8720.
Asia Session Highlights
New Zealand saw the pace of growth of Food Prices fell by more than half in July, registering at 0.6%. The CMCI Agriculture Commodity Price index fell 7.76% in the same period reflecting a broad reversal in resource prices. The release went by generally unnoticed as traders are already pricing in substantial rate cuts ahead for the Reserve Bank of New Zealand. Most recent estimates call for 150 basis points of rate cuts over the next 12 months.
Euro Session: What to Expect
Germany’s Import Price Index is expected to see the pace of growth slow to 0.5% in July from 1.5% in the preceding period. This makes sense: overall commodity prices fell 8.23% in July according to the CMCI Composite Price Index. Buoyant resource prices have been a major source of inflationary pressure globally, with monetary authorities worldwide likely to respond with rate cuts to prop up sagging economic growth should input costs continue lower.
Still, traders have pared back expectations of substantial ECB monetary easing in the near term. The market is currently pricing in a cut of just 25 basis points in the next 12 months, whereas expectations called for 50 basis points as recently as three days ago. The change in expectations could reflect an assumption that cheaper inputs would make production costs decline and thereby provide a boost to growth, muting calls for monetary stimulus.
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