Euro Open: Earnings, Oil to Continue Driving Markets

The data docket was effectively empty overnight as a pair of minor Japanese releases failed to elicit a market reaction. Notably, oil retreated back below $131 as tropical storm Dolly was forecast to bypass major production areas in the Gulf of Mexico. Significant event risk will be dispensed with early into European trading with Switzerland’s Trade Balance. All told, directional momentum should again be dominated by oil and the US earnings calendar, with Washington Mutual and Wachovia set to report figures this time around.

[B][U]Key Overnight Developments[/U]

• Overnight Japanese Data Fails to Stir the Yen
• Oil Fell Below $131/barrel on Storm Forecast

[U]Critical Levels
[/U][/B]

The Euro consolidated gains above the 1.59 level overnight, reading a high of 1.5935. DailyFX Technical Strategist Jaime Saettele has called for a sustained break above the 1.60 mark to target 1.6325. Support is seen at 1.5700. Sterling traded sideways in a tight 11-pip range. Short-term support is seen in the 1.9925-1.9884 area, while resistance remains at 2.0156.

[U][B]Asia Session Highlights[/B][/U]

The data docket was effectively empty overnight as a pair of minor Japanese releases failed to elicit a market reaction. May’s [B]All Industry Activity Index[/B] printed in line with expectations at 0.4%. [B]Supermarket Sales[/B] fell -0.9% in the year to June. The yen predictably ignored both releases.

Notably, oil retreated back below $131 as tropical storm Dolly was forecast to bypass major production areas in the Gulf of Mexico. The price of crude has been a key driver for overall risk sentiment in recent days, sparking directional momentum in EURUSD.

[U][B]Euro Session: What to Expect[/B][/U]

Significant event risk will be dispensed with early into European trading with [B]Switzerland’s Trade Balance[/B]. The trade surplus is expected to contract in June to print at 1.60 billion francs. This forecast is likely to be validated: Switzerland counts on European Union to absorb close to 60% of all their exports, and the extending economic slowdown in the regional bloc has surely crimped demand for imported goods.

Japanese [B]Convenience Store Sales[/B] surprised in May, printing at the highest level since 2004. While Japanese spend a substantial portion of their income at convenience stores, the Yen is unlikely to derive much strength from another uptick. The island nation is far from showing signs of meaningfully buoyant demand, and a global slowdown looks poised to weigh on exports. Last week’s release of minutes from the last BOJ policy meeting revealed a growing number of members favoring a focus on growth rather than inflation despite rising oil prices. This suggests we are probably a long way from a consumer-led recovery in Japan.

[B]Italian Consumer Confidence[/B] is expected to return below the 100 level in July following an upward correction in the second quarter. The 99 level is significant: confidence has trended lower since the beginning of 2007, falling -12.85% to find a bottom at 99 by the end of the first quarter of this year. Prior to this year, the last time consumer confidence fell this low was 2004. Italy’s June [B]Trade Balance [/B]with non-EU countries has trended downward since 2001, with further deterioration likely as the global slowdown sees consumers tightening their belts the world over. Continued deterioration in EZ fundamentals implied by these releases is unlikely to breaks the Euro’s back in the near term as EURUSD continues to trade around oil and risk sentiment.

All told, directional momentum should again be dominated by oil and the US earnings calendar, with Washington Mutual and Wachovia set to report figures this time around.

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To contact Ilya regarding this or other articles he has authored, please email him at <[email protected]>.[/I]