Forex traders face a busy economic calendar in the forthcoming session. The Euro will be under pressure as Euro Zone GDP is expected to shrink by -0.2%, the first-ever contraction since the currency bloc’s creation. Overnight trading saw the Japanese Yen lose ground as a decline in the service sector compounded yesterday’s poor GDP and Trade Balance results. Reserve Bank of Australia Deputy Governor Ric Battellino said policy makers will not wait for inflation to fall before cutting interest rates.
Key Overnight Developments
• Japanese Service Sector Shrinks -0.8% in June
• RBA will not wait for inflation to fall to cut interest rates, says Deputy Governor
Critical Levels
The Euro pushed lower in overnight trading, once again losing its foothold on the 1.49 level. DailyFX Chief Strategist Jamie Saettele expects the Euro correct 1.5083 before an eventual decline to 1.4668. Near-term support stands at 1.4814. Sterling continued lower after the massive selloff in yesterdays’ session. Support is now at 1.8639, with resistance at 1.8920.
Asia Session Highlights
Following a string of disappointing data in recent weeks, Japan’s Tertiary Index revealed the demand for services declined -0.8% in June. The reading is in line with yesterday’s poor GDP result that saw shrink -2.4% in the second quarter. Yesterday also brought deterioration in the Trade Balance as exports fell -1.5%, the first negative reading in 5 years. Broad slowdown in domestic and foreign demand is increasingly likely to bring upon recession in the world’s second-largest economy.
New Zealand’s business sentiment declined at a slower pace in July on expectations of interest rate cuts, with the Business NZ Purchasing Manager Index printing at 48.8 versus a revised 45.3 in June. Australia’s Consumer Inflation Expectation figure saw inflation easing sharply in August as consumers weighed up the slowing economy with July’s slide in oil prices. Confirming the dovish rhetoric of the last policy announcement, Reserve Bank of Australia Deputy Governor Ric Battellino told a Parliamentary committee that “we cannot wait to see a fall in inflation before we start cutting rates, because by then it would be too late.”
Euro Session: What to Expect
Forex traders face a busy economic calendar in the forthcoming session. The Euro will be under pressure as Germany’s Gross Domestic Product is expected to see the largest economy in the 15-nation bloc contract -0.8% in the second quarter. This will be the first quarter of negative growth since 2004. French economic growth is expected to slow to the weakest in nearly 2 years, with GDP set to print at 0.1% in the same period. Such dismal readings for the region’s top two markets are expected to see Euro Zone Gross Domestic Product shrink by -0.2%, the first-ever contraction since the bloc’s creation, putting the Euro Zone just three months shy of a recession. By definition, a recession constitutes two consecutive quarters of negative growth.
Poor GDP results will see the markets focused on text of the August edition of the European Central Bank Monthly Report. ECB President Jean-Claude Trichet yielded some dovish commentary following the last week’s interest rate decision. Trichet acknowledged that recent economic data suggests “a weakening of real GDP growth in mid-2008,” which he attributed to the global impact of higher oil prices. Crude has sold off sharply in recent weeks, losing over 20% since mid-July, and the markets are now pricing in 39 basis points of monetary easing in the next 12 months. The Euro will see overwhelming selling pressure should the report suggest a rate cut is due in the near term.
To that effect, higher readings for Germany’s Consumer Price Index and the analogous reading from the overall Euro Zone are likely to be overlooked. The former number is expected to see inflation at a record 3.4% in the year to July, while the latter is forecast at 4.1% in the same period.
Switzerland’s SECO Consumer Climate data rounds out the docket, with expectations calling for a decline to -4 in July from a reading at 2 in the preceding month. This will put the metric at the lowest since early 2006. The decline in consumer sentiment will add weight to the Swiss National Bank’s expectations of a cooling in the mountain nation’s economy into the second half of the year after May’s Retail Sales trumped expectations (7.4% vs. 3.8% forecast) and June’s improvement in the UBS Consumption Indicator (2.246 vs. 1.948 previous).
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
