Overnight data offered few surprises: UK house prices continued lower, while marginal improvements in New Zealand’s service sector and Japan’s department store sales were inadequate to substantially offset recent weakness. The European session is expected to see Euro Zone trade figures show a surplus as waning consumer demand sees imports lower. Traders will be most interested in Switzerland’s retail sales figure, as continued strength in domestic spending may pressure the central bank to raise interest rates in September all the while the global economy is slowing.
[B][U]Key Overnight Developments[/U]
• Dollar Opens the Weak With Loses Against the Euro, Pound
• NZ Service Sector Sees Improvement on Rate Cut Expectations[/B]
[U][B]Critical Levels[/B][/U]
The Euro started the week on a high note, rallying to retake the 1.47 level in overnight trading. DailyFX Chief Strategist Jamie Saettele expects the Euro correct 1.5083 before an eventual decline to 1.4431. Near-term support stands at 1.4650. Sterling also took a piece out of the dollar, testing above 1.87. Support is now at 1.8532, with resistance at 1.8920.
[U][B]Asia Session Highlights[/B][/U]
Overnight data offered few surprises. [B]Rightmove House Prices[/B] continued to deteriorate, printing at -4.8% in the year to August. The release did not have a lasting effect on GBPUSD price action as the UK’s severe housing slump has already been priced into the exchange rate. New Zealand’s [B]Performance of Services Index[/B] improved a bit, seeing the sector shrinking slower than it did in June with a print at 48.9 (vs. 45.6 in the preceding month). A similar dynamic was seen last week as the contraction Business NZ Purchasing Manager Index also slowed. The marginal improvement owes to expectations of forthcoming RBNZ rate cuts, with the markets pricing in a 150 basis points of monetary easing for this year alone.
The final revision of Japan’s [B]Leading Index[/B] saw June’s reading improve a hair from the initial estimate, printing at 91.3. The reading is still is very close to the 6-year low of 90.8 seen in March, breaking the improvements seen early in the second quarter. The release failed to pressure the Yen substantially lower as recent weeks saw the government of world’s second-largest economy openly concede that Japan’s largest post-war expansion is likely over. [B]Department Store Sales[/B] shrank at a slower pace in Tokyo and nationwide, but the improvement falls short of offering Yen bulls anything tangible.
[U][B]Euro Session: What to Expect[/B][/U]
The Euro Zone’s [B]Trade Balance[/B] figures are expected to show a surplus of 1.2 billion, reversing a deficit of -4.6 billion in the preceding month. An improvement in the metric can come from either stronger export growth or weaker demand for imported goods. The latter is the likelier scenario in this case as the downturn in the 15-nation bloc erodes consumer demand. Euro Zone Retail Sales were seen shrinking -3.1% in the year as consumers prepare for a lean period and shy away from spending. This will affect spending on imported goods just as well as domestically produced ones, meaning the improvement in the headline trade balance figure can hardly be taken as a sign of strength for the Common Market. The same dynamic will be present in Italy’s [B]Current Account[/B] reading, with a narrower deficit in June following May’s -6895 million euro shortfall.
Switzerland’s [B]Retail Sales[/B] is expected to see receipts growing at an annualized 3.3% in June. May saw a sharp uptick to 7.4% as the Euro2008 soccer championship co-hosted by Switzerland and Austria brought strong growth in electronics (23%), beverages (12.5%), and leisure goods (15.6%). A slowdown in retail activity would help the Swiss National Bank realize their expectations of a slowdown towards the second half of 2008 to bring inflation back within the target range.
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