Euro Open: Markets Brace for US GDP

Conflicting economic releases saw the Australian dollar seesaw sharply overnight. European trading will heat up with a busy economic calendar. Preliminary estimates of Euro-Zone Consumer Prices are expected to see annualized inflation at 4.1%, a new all-time high. On balance, traders may see price action focused on the US Gross Domestic Product figure due late into the session as the markets ponder the sustainability of the recent dollar rebound.

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

• Australian Dollar Seesaws on Opposing Data
• Euro Inches Higher Overnight Ahead of US GDP[/B]

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

The inched higher towards the 1.56 level overnight. DailyFX Technical Currency Strategist Jamie Saettele reports the bias has shifted to favor the downside, though a short retracement higher may be in the cards. Near-term support remains at 1.5569 with resistance at 1.768. Sterling trading proved choppy around the 1.98 level. Support remains in the 1.9550-1.96 area, with resistance at 2.0075.

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

Conflicting economic releases saw the Australian dollar seesaw sharply overnight. Consumer demand faltered in June under the dual weight of record-high borrowing costs and rising energy prices, with [B]Retail Sales [/B]underperforming expectations to print at a six-year low of -1.0%. The recent collapse in crude prices may give RBA Governor Glenn Stevens room for a rate cut to support the economy at the next policy meeting in September. Accordingly, AUDUSD lost 31 pips immediately following the release. The losses were reversed within the next 10 minutes as June’s [B]Trade Balance[/B] surprised sharply to the upside, posting a surplus of A$411 million versus expectations of a –A$100 million deficit. May’s sizable deficit of –A$965 million was also revised to a much more manageable –A$253 million. The improvement was driven by a surge in coal exports driven by insatiable Chinese demand for Australia’s mining products. A fall in imports also helped, driven by the aforementioned contraction in consumption demand.

[B]NBNZ Business Confidence[/B] declined further for the first time in four months in July, sinking to -43.2 from -38.7 in the preceding month. Sentiment failed gain upward momentum as RBNZ Governor Alan Bollard cut interest rates and promised further monetary easing in the near term. Expectations of rising living costs (oil, food) remained entrenched, crimping demand. NZDUSD fell just 12 pips on the release as traders focus on the pace of rate cuts with oil prices falling in recent weeks rather than established themes of economic slowdown that have already been priced into the exchange rate.

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

European trading will heat up with a busy economic calendar. First up, [B]Switzerland’s Consumer Price Index[/B] is expected to show inflation at 3% in the year to July. The latest SNB projections call for prices to top out at 2.91% in the third quarter, followed gradual easing driven by slowing economic growth. A print at or above the forecast would put inflation on track to surpass the central bank’s assessment. On balance, the next CPI release covering August and capturing the effects of July’s crude oil selloff is set to print before the next SNB policy meeting, suggesting a rate hike will not be guaranteed on a strong July release.

Similar considerations will be in play as preliminary estimates of [B]Italian and Euro-Zone Consumer Prices[/B]. Italy is expected to see annualized inflation at 4.2% while the broad EZ metric is seen rising to 4.1%, both new all-time highs. Traders priced in climbing headline inflation driven by rising energy costs months ago and are now anxious to see the impact of July’s crude selloff on the price level. Market participants know that some lag can be expected as the effects of cheaper energy trickle into the broad economy, meaning monetary policy is likely to remain static and price action unresponsive for the time being.

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