Overnight data failed to surprise the markets as major releases fit neatly within established themes already priced into the majors. Markets are likely to remain jittery into the US session as traders await Fed Chairman Ben Bernanke’s speech at the FDIC forum. Bernanke has recently used such events to talk up inflation risks, fueling speculation of looming rate hikes and strengthening the dollar. Should the Fed chief take a similar tone this time around, recent Euro and Pound selling pressure may substantially intensify.
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[U]Key Overnight Developments[/U]
• Markets Ignore Calendar as Data Fits with Established Themes
• Dollar Recovered Modestly After US Session Loses, Bracing For Bernanke
[U]Critical Levels
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The Euro consolidated around the 1.57 level overnight following an upward jolt during US hours. As reported by DailyFX Chief Strategist Kathy Lien, the move was sparked by sharp selling of US equities. Technical Analyst Jamie Saettele expects EURUSD to continue to correct lower in the near term with support in the 1.5550-1.5600 area ahead of a return to historic highs above 1.60. Meanwhile, Sterling closed the US session just above support at 1.9744 and extended below it overnight. The selloff now threatens key support at 1.9583.
[U][B]Asia Session Highlights
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Overnight data failed to surprise the markets as major releases fit neatly within established themes already priced into the majors. [B]New Zealand’s Business Opinion Survey[/B] remained static at -64 in the second quarter, remaining at the lowest levels since 1986. While this certainly does not bode well for the economy, it is hardly surprising to traders that have are already primed for the first RBNZ rate cuts since 1993 to materialize this year.
[B]NIESR’s UK GDP Estimate[/B] highlighted the current tug of war between floundering growth and booming inflationary pressure. All bets appear to favor an anti-inflationary rather than a pro-growth stance, with NIESR’s own director noting that “despite the fact that the economy is now scarcely growing, we share the view that concerns about inflation make it more likely that interest rates will be raised than reduced in the coming months.’’ This confirms recent commentary by Bank of England Governor Mervyn King who forecast that the UK faces “a period of rising inflation and falling economic growth.” With the markets acutely aware of the BoE’s bias for some weeks, the release did not coincide with acceleration in existing GBPUSD selling into the Asian session.
The Australian dollar oscillated in a tight 23-pip range despite a dismal [B]June Business Confidence[/B] report. The headline figure printed at the worst level since a spike low in September 2001. The Yen behaved in a similar fashion, as the lowest [B]Eco Watchers Survey[/B] since 2001 failed to jolt USDJPY out of a 30-pip range.
[U][B]Euro Session: What to Expect
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Today’s session is virtually barren of event risk with May’s [B]DCLG UK House Prices[/B] index the only item on the docket. We have already seen June’s Nationwide House Prices data, making this release profoundly backward looking and therefore unlikely to affect the market. In any case, Nationwide’s May result revealed prices fell -2.5% since April, suggesting today’s data will show the same pattern.
Markets are likely to remain jittery into the US session as traders await Fed Chairman Ben Bernanke’s speech at the FDIC forum. Bernanke has recently used such events to talk up inflation risks, fueling speculation of looming rate hikes and strengthening the dollar. Should the Fed chief take a similar tone this time around, recent EURUSD and GBPUSD selling pressure may substantially intensify.
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