Euro Looking To Regain Footing On Largest German Industrial Production Gain in 16 Yea

DailyFx · July 8, 2009, 7:10am

The Euro found brief support after it fell over 200 pips to 1.3857 on bullish comments from ECB member Gonzalez-Paramo and a stronger than expected May German industrial production print. Activity in the region’s largest economy rose the most in 16 years by 3.7% versus the predicted 0.5%.

[B]Talking Points
• Japanese Yen: Consolidating above 94.10
• Pound: Falling Home Prices Diem Recovery Outlook
• Euro: German Industrial Production Rises Most In 16 Years
• US Dollar: Consumer Credit Measurements On Tap.
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Euro Looking To Regain Footing On Largest German Industrial Production Gain in 16 Years[/B][/U]

The Euro found brief support after it fell over 200 pips to 1.3857 on bullish comments from ECB member Gonzalez-Paramo and a stronger than expected May German industrial production print. Activity in the region’s largest economy rose the most in 16 years by 3.7% versus the predicted 0.5%. However, April saw it earlier reading of -1.9% revised lower to -2.6% which offset some of the positive impact from May’s report. We also saw final GDP figures for the Euro-Zone revised slightly lower to -4.9% from -4.8% as industrial activity fell 2.9% in the period. Meanwhile, the ECB”s Gonzalez-Paramo said that there is no need for additional measures from the central bank which will raise interest rate expectations.

We may start to see more rhetoric from the central bank as they look to temper expectations for further easing after President Trichet left the door open for additional cuts following the central banks’ policy meeting. The central bank leader stated that they had not concluded the current record low 1.00% was the bottom for their benchmark rate which lowered interest rate expectations. Looking at the breakdown of the German industrial production figures we see a sharp reversal in capital goods investment which rose 8.3% in May following a -6.9% drop the moth prior and over 20% declines in two of the previous four months. The increased investment is a sign that mangers are becoming more optimistic which bodes well for future growth. The ERU/USD found support at the 50-Day SMA at 1.3852 but downside risk remain to 1.3795-38.2% Fibo of 1.2884- 1.4340.

The Pound has seen choppy price action after falling to as low as 1.6046 on concerns that the BoE will add to their quantitative easing efforts at Thursday’s policy meeting. The early release of the NIESR GDP estimate added to prevailing weakness yesterday when it showed that the economy contracted another 0.4% in the second quarter following the 2.4% drop in the quarter prior. Meanwhile, the Hailfax House price report showed a 0.5% decline in values which fueled bearish sentiment during Asian trading before sterling regained its footing. The recovery of the housing sector is viewed as a key element to a broader improvement and if weakness returns then the BoE may be forced to take further action. Support lies at 1.5950-the 50-Day SMA which could be tested today on way to 1.5801-the 6/8 low.

The dollar has started to consolidate its gains after finding continued support throughout the Asian session following yesterday’s bout of risk aversion. Concerns over corporate earnings are weighing on sentiment and talk from U.S. politicians of a second stimulus plan has heightened fears that a recovery made in the distance. A relatively empty economic will leave price action at the mercy of the broader themes, but MBA mortgage applications and the May consumer credit report will give some insight to the current status of credit markets. If we see further evidence that credit is becoming more readily available then it could raise optimism and weigh on the greenback.

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