Currency Markets to Trade with Risk Sentiment on Thin Economic Calendar (Euro Open)

Currency markets are likely to continue looking to risk sentiment to drive price action with another thin economic calendar on tap in European trading hours. Switzerland's Trade Balance report and the SECO economic forecast update are set for release.

Key Overnight Developments

• NZ Current Account Surprises With Surplus in Q2 as Imports Fall
• US Dollar Sold in Overnight Trading as Stocks Gain on Asian Exchanges

Critical Levels




The Euro added 0.3% against the US Dollar to retake the 1.47 level in overnight trading. The British Pound followed suit, testing as high as 1.6258. We continue to hold a short GBPUSD position, initially targeting 1.6112.


Asia Session Highlights




New Zealand’s Current Account Balance unexpectedly showed a surplus of NZ$124 million in the second quarter, marking the first quarterly surplus since the first three months of 2003. Economists were forecasting a –NZ$1.98 billion result ahead of the release. In annual terms, the deficit narrowed to –NZ$10.6 billion or 5.9% of GDP, the smallest share of total output in nearly 5 years. Details behind the headline figure look far from encouraging however: imports fell -19.6% from a year earlier, outpacing a -3.5% decline in exports and painting a picture of stagnant consumer demand in the island nation. The deficit is likely to continue to narrow in the months ahead as rising unemployment weighs on spending. Indeed, the central bank expects the external gap will narrow to 5.5% of GDP while a survey of economists polled by Bloomberg predicts the jobless rate will rise to a decade high of 6.8% by the end of this year. Traders welcomed the announcement, sending the New Zealand Dollar 90 pips higher against its US counterpart in the hour following the data release as traders expressed relief that the central bank may not be pushed to lower interest rates to cheapen the currency and thereby offer exporters a boost to help narrow the current account shortfall, which has been on the forefront of policymakers’ concerns since it led to a downgrade of the New Zealand’s credit outlook by the Fitch ratings agency. An index of traders’ one-year RBNZ rate hike expectations compiled by Credit Suisse jumped 8 basis points to a record high after the figures crossed the wires.


Euro Session: What to Expect




Swiss economic data dominates a thin economic calendar in European hours. While Augusts’ Trade Balance report is likely to show that exports fell considering last week’s dismal industrial production data, the appetite for imported goods is proving difficult to gauge from leading indicators. Domestic demand may have recovered a bit considering the recent upward correction in retail sales figures, but the trend in receipts is undeniably pointing lower while unemployment rises and consumer confidence continues to set record lows. Separately, the release of updated economic forecasts from the government’s State Secretariat for Economic Affairs (SECO) will be notable in terms of how it compares to last week’s upward revisions to the growth and inflation outlook from the SNB.

On balance, risk sentiment is likely to remain the key driver for currency markets going into the US session. Stocks rose for the first in three days across Asian exchanges after Citigroup raised its price estimate for Samsung Electronics (the world’s largest computer memory chip manufacturer), Morgan Stanley upgraded their outlook for Samsung SDI Co. and LG Chem Ltd on expectations of higher car battery demand, and China Mobile Ltd (the largest global cellular provider) said it’s customer base grew 15.6% from the previous month in August. Risky assets look set to retain momentum with US equity index futures trading higher and hinting that Wall St will open 0.2% higher on Tuesday, adding to selling pressure on the safety-linked US Dollar.


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