The Euro flat-lined in overnight trading, consolidating in a tight range below the 1.47 level. British Pound trading was largely uneventful, with Cable oscillating around 1.8550. Expectations point to another day of lackluster European data, though German IFO and Euro Zone Current Account releases have room to issue an upside surprise.
Key Overnight Developments
• New Zealand Consumer Confidence higher on rate cuts, cheaper oil
• Euro, Pound at a standstill in overnight trading
Critical Levels
The Euro flat-lined in overnight trading, consolidating in a tight range below the 1.47 level. DailyFX Senior Currency Strategist Jamie Saettele expects EURUSD to test 1.49 before the downtrend resumes. Sterling trading was largely uneventful, with Cable oscillating around 1.8550.
Asia Session Highlights
The economic calendar was largely uneventful in overnight trading, with the Westpac NZ Consumer Confidence reading the only significant item on the docket. The metric shot up to 104.8 in the third quarter from 17-year lows at 81.7 in the three months to July as faster-than-expected monetary easing and significantly cheaper oil added to consumer optimism. RBNZ Governor Alan Bollard surprised the market in September, cutting rates by 0.50% where only 0.25% was expected. Meanwhile, crude has fallen over 25% since the peak at over $147/barrel in July. New Zealand dollar price action was unaffected by the release as the market continues to expect further rate cuts in the months ahead, with bond yields pricing in 125 basis points in additional easing by the end of 2009.
Euro Session: What to Expect
Expectations point to another day of lackluster European data. Germany’s IFO Business Climate survey of is seen moving further into negative territory having initially printed below the reference 100 level in July. Forecasts call for a reading at 94.3 in September, a fresh 3-year low. Supportive of expectations, Germany’s Purchasing Managers Index for the manufacturing sector fell more than forecast. As we wrote yesterday, “Capital goods including machinery and transportation equipment are the primary exports of the currency bloc’s top economies so a decline in manufacturing will weigh heavily on economic growth.” That said, DailyFX Strategist Terri Belkas has pointed out that traders could see an upside surprise considering a better-than-expected reading for September’s ZEW Survey of analyst sentiment.
The Euro Zone’s Current Account also presents a mixed picture. The trade portion of the metric saw the deficit widen to show the largest shortfall in nearly two years in July as cooling global demand and a stronger Euro weighed on exports. However, the capital side of the equation may offer a positive contribution. Benchmark fixed income assets added nearly 2% and key equity indices were marginally higher. Put simply, this means the net outflow of money from international trade could be mitigated in part by net inflows of investment capital into European markets.
Upside surprises could spark considerable volatility in EURUSD as a negative growth outlook is likely priced in already. That said, the long-term bias remains in favor of a bearish scenario as bond yield forecasts continue to call for 75 basis points in rate cuts from the European Central Bank over the course of 2009.
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To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
