Japanese data disappointed overnight: Bank Lending failed to grow for the first time in seven months while July’s Eco Watchers Survey saw sentiment fall to the lowest level since the last recession. Economic data is unlikely to be a driving force in European hours as forex traders appear intent to push the dollar to new highs. This trajectory is likely to carry over into the remainder of the trading week with little by way of significant event risk to derail momentum.
[B][U]Key Overnight Developments[/U]
· Japanese Data Disappoints, Economy Inching Closer to Recession
· Euro and Sterling Collapse in Overnight Trading[/B]
[U][B] Critical Levels[/B][/U]
The Euro tumbled sharply lower in overnight trading, breaching 1.53 and testing below the 1.52 level. DailyFX Senior Currency Strategist Jamie Saettele’s recent analysis has called for the Euro to fall below 1.5283. Near term support stands at 1.5203, with resistance at 1.5445. Sterling followed the Euro lower, breaking support at 1.9337. This has now been turned into resistance, with support standing at 1.9185.
[U][B]Asia Session Highlights[/B][/U]
Japanese [B]Bank Lending[/B] failed to grow for the first time in seven months in July, supporting the government’s recent admission that the island nation’s largest postwar expansion was likely over and conditions were now “deteriorating”. Adding to the negative tone, July’s [B]Eco Watchers Survey[/B] saw sentiment fall to the lowest level since the last recession. Taxi drivers, barbers and others with a pulse on the “man on the street” offered surveyors a bleak picture of consumers discouraged by from spending by rapidly rising living costs. Japan’s Economic and Fiscal Policy Minister Kaoru Yosano put it best yesterday when he said, “We can’t be optimistic about the economy. Japan’s economy will remain weak for a while.” The yen sold off against the dollar, reaching a high of 109.77 overnight with the pair poised for a test at 110.00 in the coming days.
[U][B]Euro Session: What to Expect[/B][/U]
Switzerland’s [B]Unemployment Rate[/B] is expected to remain flat at 2.3% in July, the lowest since 2002. Manufacturing firms had boosted capacity in the first half of the year to meet orders from Asia and Eastern Europe. The second half of the year will likely see unemployment numbers rise as the global slowdown sees cooling demand for Swiss exports. Indeed, July’s SVME-Purchasing Manager’s Index of business sentiment fell to the lowest reading in nearly three years, suggesting tougher times ahead.
Preliminary estimates of Italy’s second quarter [B]Gross Domestic Product [/B]are expected to see economic growth stall with a print at 0.0% in the second quarter. Recent economic metrics have put the Italian economy on a downward path: Industrial production fell 1.3% in the three months to June, the third consecutive quarterly decline, Consumer confidence has slumped to the lowest since 1993, and Business confidence fell to the lowest since 2001. While trade figures have remained resilient for now, it seems only a matter of time before that too begins to deteriorate as economic slowdown grips Italy’s chief trading partners in other EU nations. To that effect, traders are likely to see growth begin to decline in the second half of the year, with a downside surprise not out of the question this time around.
On balance, the data docket is unlikely to be a driving force in European trading. Forex traders appear focused to push the dollar rally to new highs. This trajectory is likely to carry over into the remainder of the trading week with little by way of significant event risk to derail momentum.
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