Japan offered the solitary piece of news-worthy data overnight as the preliminary reading of May’s Leading Index disappointed to the downside, printing at 92.6% versus the expected 93%. Economists expect deteriorating demand in the US to bring substantial slowdown to Japan’s export sector and the entire economy by extension. Similar developments are already unfolding in Europe, casting increasing doubt that the world economy will be able to de-couple from the US to continue expanding while the ailing super-power struggles to regain its footing. Interestingly enough, a global slowdown scenario may actually prove beneficial to the US dollar.
[B][U]
Key Overnight Developments[/U]
• Japan’s Government Sees Economy Reaching “Turning Point”, Heading Lower
• Dollar Inches Lower Following Morning Rally, Profit-Taking Likely[/B]
[U][B]Critical Levels[/B][/U]
The Euro sold off substantially following this mornings ECB and NFP releases, breaking support at 1.5720 and continuing lower to test below the 1.57 level. As noted in Jamie Saettele Daily Technical Outlook, the pair is expected to continue lower next week with the next level of support found at 1.5534. The sterling followed the Euro lower as the Dollar gained ground across the board. A GBPUSD spike low tested support at 1.98 but failed to break it. A return to upside momentum sees resistance at 2.0175.
[U][B]Asia Session Highlights[/B][/U]
Japan offered the solitary piece of news-worthy data overnight as the preliminary reading of May’s Leading Index disappointed to the downside, printing at 92.6% versus the expected 93%. The release was accompanied by a statement from the Japanese government reiterating the economy was reaching a “turning point”, alluding the longest post-war expansion in the world’s second largest economy is on the cusp of ending. The key terminology was re-introduced last month, having been absent from government reports since the 2001 recession. Economists expect deteriorating demand in the US to bring substantial slowdown to Japan’s export sector and the entire economy by extension. Similar developments are already unfolding in Europe, casting increasing doubt that the world economy will be able to de-couple from the US to continue expanding while the ailing super-power struggles to regain its footing.
Interestingly enough, a global slowdown scenario may actually prove beneficial to the US dollar. As we discuss in the latest edition of the DailyFX Quarterly Outlook, it is reasonable to think that investors may re-appraise the greenback as hopes that the world economy will decouple from that of the United States are finally abandoned. In this instance, traders will shift focus from looking for places where the crisis isn’t to those where it will end first. This will lead US assets to be bought both on the expectation that a proactive policy response will mean the US will lead the global recovery and as a safe-haven investment vehicle.
[U][B]Euro Session: What to Expect[/B][/U]
Today’s session will likely prove uneventful with a thin European docket followed by market closures in the US for the July 4th holiday. France’s Government Budget Deficit reading is sure to go unnoticed with Euro traders focused on concrete, near-term factors that will push the ECB’s “no bias” stance in a direction. To that effect, Germany’s Factory Orders data could prove of interest as a gauge of manufacturing activity in the Euro Zone’s industrial powerhouse.
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