The Euro remained range-bound overnight as the single currency consolidated breakneck gains in NY hours. The Pound followed suit, oscillating around the 1.8550 level. The economic calendar is set to question the Euro’s recent strength as consumption metrics are set to decline and the manufacturing sector is expected to show continued weakness.
Key Overnight Developments
• Markets remain wary of US financial sector rescue plan
• Crude oil down over 1% in London trading
Critical Levels
The Euro remained range-bound overnight as the single currency consolidated breakneck gains in NY hours. The Pound followed suit, oscillating around the 1.8550 level.
Asia Session Highlights
The calendar was virtually empty overnight. Risk sentiment continued to point to a shaky marketplace as Asian stock markets lost ground and major European equity index futures pointed to loses at the open of the trading day. As we mentioned yesterday,
investors are second-guessing the good news of a bailout as the US Congress begins to haggle over the details of the Treasury’s proposal.
Crude oil was trading lower by over 1% in early London trading following
a sharp rally that saw prices gain 16.37% on short-covering of expiring futures contracts.
Euro Session: What to Expect
European consumption metrics are set to decline.
French Consumer Spending is set to decline -0.1% on a monthly basis, bringing annualized growth to just 0.4% in the year to August, the second-lowest reading in 9 years.
Italian Consumer Confidence is expected to fall to 98.4 in September as last month’s bounce to 99.5 from record lows on cheaper oil is reversed with deteriorating economic growth back in focus. Indeed, Italy’s economy shrank -0.3% in the second quarter, putting the country on the brink of recession.
Meanwhile, the manufacturing sector is expected to show continued weakness in July as
Industrial New Orders are seen shrinking for the third consecutive month to print at -0.6% in July. This would mean orders fell -3.6% on an annualized basis.
Purchasing Manager Indices for the manufacturing sector in France, Germany and the overall Euro Zone are also set to fall deeper into contractionary territory. Capital goods including machinery and transportation equipment are the primary exports of the currency bloc’s top economies so a decline in manufacturing will weigh heavily on economic growth. Indeed, Euro Zone GDP shrank -0.2% in the second quarter with economists’ estimates pointing to further slowdown in the three months to October.
The growth story is a familiar one at this point as for the Euro Zone, with the last remaining question being the timing of the first rate cut from the European Central Bank. Bond yields continue to forecast a 0.25% rate cut in the first quarter of next year with a grand total of 75 basis points in easing over the course of 2009 to bring benchmark borrowing costs to 3.50%.
Related Articles:
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US Dollar Plummets More Than 2% as Credit Concerns Linger
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
Euro Open: Poor Economic Data to Disagree With Euro Strength
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