Overnight data gave an upward boost to the New Zealand dollar as Consumer Prices revealed inflation at an 18-year high. The undeniable highlight of the session comes with the July edition of Germany’s ZEW Survey. The timely release is expected to show accelerating deterioration in the Euro Zone’s largest economy. The metric has tremendous market-moving potential, and a downside surprise will weight heavily on the Euro.
[B][U]Key Overnight Developments[/U]
• NZ Inflation At 18-Year High, RBNZ Rate Cut Unlikely To Come Soon
• Euro Braces for Impact as ZEW Approaches[/B]
[B][U]Critical Levels[/U][/B]
The Euro climbed back above the 1.59 level overnight to stabilize in the 1.5930-40 area. DailyFX Technical Strategist Jaime Saettele reports the pair is biased upward to test all-time highs at 1.6018. Support is seen at 1.5611. Sterling mirrored Euro price action, advancing gradually higher to settle around 1.9970-90. Support is seen at 1.9648, while resistance stands at 2.0175.
[B][U]Asia Session Highlights[/U][/B]
Overnight data gave an upward boost to the New Zealand dollar as [B]Consumer Prices[/B] revealed inflation at an 18-year high. The metric surpassed expectations of 3.8% to print at 4.0% in the year to the second quarter. NZDUSD spiked 33 pips higher in the first five minutes following the release and retained an upward trajectory throughout the session. [B]Food Prices[/B] further reinforced the overall outcome, growing 1.3% in June versus 0.3% expected. Buoyant price growth will delay the promised rate cut from the RBNZ as the bank weighs deteriorating growth prospects with inflationary pressure.
The UK’s [B]RICS House Price[/B] data improved a bit in June to print at -88.0% following the lowest-ever showing at -92.9% in May. Still, the metric would need to rise plenty more before reversing the massive 47% of losses recorded just this year so far. The UK housing market is still very much in decline, and traders made no mistake about it as GBPUSD remained in a 16-pip range overnight.
[B]Tokyo Condominium Sales[/B] sunk to the lowest since 1998, falling -30% in June following a -17.7% decline in May. Higher land costs as well as booming prices in key construction commodities such as steel and copper have reflected in condos’ final price tag, making them increasingly unaffordable and cutting sales.
[B][U]Euro Session: What to Expect[/U][/B]
A dense calendar heading into the European session offers plenty of event risk to fuel volatility. Things will start off with May’s [B]French Current Account[/B] figure. The metric has been in steep decline, having deteriorated nearly 77% since February. More of the same can be expected this time around as the buoyant Euro erodes export growth.
The final revision of the [B]Italian Consumer Price Index[/B] is expected to stay in line with initial estimates. Preliminary figures saw annualized inflation at 4.0%, the highest in 11 years. Continued upward pressure on the price level will point market expectations towards another ECB rate hike. As reported by DailyFX Chief Strategist Kathy Lien, ECB member Bini Smaghi made it clear in a Financial Times article that current slowdown in the 15-nation bloc is not sufficient to shift the bank’s focus from inflation to economic growth.
Headline [B]UK Consumer Prices[/B] are expected to edge a higher on an annualized basis, printing at 3.6% in June versus 3.3% in the preceding month. Most notably, the Core version of the metric that filters out distortions from booming oil and food prices is to hold at 1.5%. The [B]Retail Price Index[/B] is expected to follow suit, with the annualized metric unchanged at 4.3% in June from May’s result. This will be welcome news to the BOE as the bank’s rhetoric suggests they would clearly prefer not to crush the fragile economy with a rate hike. Above-target inflation has already been explained away by Governor Mervyn King, who predicted price growth would top 4% this year. With this already priced into the Pound, traders will be looking for a substantial upside deviation to force the BOE’s hand.
The undeniable highlight of the session comes with the July edition of Germany’s [B]ZEW Survey.[/B] The timely release is expected to show accelerating deterioration in the Euro Zone’s largest economy. The metric has tremendous market-moving potential, and a downside surprise will weight heavily on the Euro. Traders are increasingly betting the single currency is topping out as hopes of decoupling from the US crisis give way to a global downturn scenario seeing the Euro area sink deeper into decline.
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