The small helping of Australian and Japanese economic data failed to stir the markets overnight. With a light data docket on offer in the forthcoming European session, price action is likely to fall back on risk sentiment for directional momentum. Traders may find price action following the tone in tonight’s Western European earnings reports, particularly those in the Financials sector.
Key Overnight Developments
• Australian and Japanese Data Fail to Directional Momentum
• Euro and Pound Higher Overnight Following US Session Losses
Critical Levels
The Euro retraced some of the losses sustained during US hours, bouncing higher towards 1.5870. DailyFX Technical Strategist Jaime Saettele has called for a sustained break above the 1.60 mark to target 1.6325. With yesterday’s session close below short tern support at 1.5840, the next hurdle to downside momentum is at 1.5612. Sterling followed the Euro higher overnight, regaining position above the 2.00 level. Support is now at 1.9810, while resistance remains at 2.0175.
Asia Session Highlights
The small helping of economic data failed to stir the markets overnight. Preliminary estimates of Australian Imports saw volumes decline -2% having expanded 7% in May. The fall was led by an 12% decline in imports of non-industrial transport equipment and an 11% in that of fuels. The reading is broadly in line with well-defined themes characterizing the Australian economy in recent months: rising energy prices and record-high borrowing costs have depressed overall consumption and by extension crimped import demand. Reasonably enough, the decline has been most pronounced in purchases of big-ticket items (such as cars) and petrol-related products (again, cars). June’s RBA Foreign Exchange Transaction data revealed that the bank sold A$875 million more than it bought in the spot currency market. This suggests the bank had to bring interest rates down to approach the target 7.25% as the global credit crunch bid up borrowing costs. Traders paid little heed to both releases as AUDUSD remained in a tight 10-pip range throughout the session.
The final revisions of Japan’s Leading and Coincident Indices came in largely in line with initial estimates. Having been priced in at initial release, the data failed to reflect in USDJPY.
Euro Session: What to Expect
A lighter data docket will offer traders a bit of a respite in the forthcoming session after the last two days saw the markets bombarded with market-moving releases. Italy’s Trade Balance will take center stage, with traders looking for the deficit to widen in May. The non-EU portion of the trade balance showed deterioration when it was released on June 20th as higher oil receipts boosted imports while the stronger Euro weighed on imports. Italy’s government recently approved a measure to reintroduce nuclear power, with the Undersecretary for Economic Development Adolfo Urso stating that “it's a necessary path to progressively release Italy from its dependency on the cost of oil." The EU component may suffer as well: about 60% of all Italian trade is done with other members of the Union, and a slowing region-wide economy likely reduced export demand.
Switzerland’s July edition of the ZEW Survey is expected to show analysts’ sentiment continue to sour, with a headline print at -67 versus June’s -63.8. A reading on the downside would act to counterweigh yesterday’s better-than-expected Retail Sales report that showed activity jump 7.4% in May versus 3.8% expected. The SNB has kept interest rates on hold, expecting the economy to slow enough to contain inflationary pressure. Traders will welcome the timeliness of the ZEW release as continued economic strength in the third quarter would likely see price levels surpass SNB expectations substantially enough to force a rate hike.
The session will conclude with May’s Euro-Zone Construction Output figures. The annualized output growth rate slowed a whopping 127.9% so far this year. Industry group Euroconstruct expects European construction to contract for the first time since 1993 this year. A reading to the downside will reveal yet more weakness in a week already marred by dismal releases from across the 15-nation bloc.
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
