Higher-than-expected inflation failed to have a lasting effect on the Australian Dollar overnight. The data docket will heat up in European hours, with traders paying particular attention to the release of minutes from the last meeting of the Bank of England. A dovish tone will weigh heavily on the Pound as it slips back below the 2.00 level.
Key Overnight Developments
• Higher Consumer Prices Fail to Strengthen Aussie Dollar
• Bank of England Takes Center Stage in European Trading
Critical Levels
Euro remained in a tight 28-pip range overnight as the pair consolidated losses sustained in US hours. DailyFX Technical Strategist Jaime Saettele favors a long-term bullish bias as long as price remains above 1.5611, aiming for a sustained break above the 1.60 mark to target 1.6325. Support is seen at 1.5733. Sterling mimicked its continental counterpart, oscillating in a 40-pip range above the 1.99 level. Short-term support is seen at 1.9875, while resistance stands at 2.0150.
Asia Session Highlights
Higher-than-expected inflation failed to have a lasting effect on the Australian Dollar overnight. The Consumer Price Index clocked in at the fastest pace in two years at 4.5% in the year to the second quarter (versus expectations of 4.3%). We noted earlier in the week that “Consumer Prices…are likely to possess less market-moving potential that usual with an RBA rate hike firmly out of the question in the near term.” This proved accurate: AUDUSD spiked 23 pips higher and promptly reversed course towards session lows within 10 minutes of the release.
Euro Session: What to Expect
The data docket will heat up in European trading after two days without significant releases. Things will start off with French Consumer Spending numbers. Expectations call for sales to expand 1.4% in the year to June, with traders looking for confirmation that May’s uptick at 3.1% was a one-off affair. The strong figure likely owed to “Les Soldes de Printemps”, the annual nationwide Spring Sale. Indeed, consumer confidence printed at 10-year lows in June.
Italian Retail Sales are expected to improve a bit, showing a decline of -0.5% in the year to May versus -2.3% in the preceding month. Traders saw a similar uptick in May’s consumer confidence as Prime Minister Silvio Berlusconi formed a new government that promised tax cuts and relief for homeowners facing high mortgage payments. Confidence went on to plunge lower in June and July, suggesting the improvement in retail activity will also prove temporary.
Traders will pay particular attention to the release of minutes from the last meeting of the Bank of England. The bank’s dual mandate requiring policymakers to mind both prices and economic growth has limited its options in dealing with record inflationary pressure as the economy slips into recession. As reported by DailyFX Chief Strategist Kathy Lien, continuously poor data as well as recent commentary from BoE officials suggest a shift towards a dovish posture may be in the cards.
BBA Loans for House Purchases will continue to decline, suffering at the hands of the UK housing slump and the global credit crunch. Euro-Zone Industrial Orders are likely to validate expectations of sharp decline. The same reference period saw sharp decline for two of the EZ’s top 3 manufacturers: Orders fell -2.0% in Germany and -5.3% in Italy.
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