Australian and New Zealand dollars failed to capitalize as both countries saw the release of better-than-expected employment figures. Forex traders will keep a close eye on tonight’s busy European session calendar. Naturally, the primary focus will be the back-to-back monetary policy announcements from the European Central Bank and the Bank of England.
Key Overnight Developments
• Australian, New Zealand Dollar Fail To Capitalize on Employment Uptick
• Forex Markets Hone in on BOE, ECB Rate Decisions
Critical Levels
The Euro pulled up modestly in overnight trading having tested below the 1.54 level in US trading. DailyFX Senior Currency Strategist Jamie Saettele reports that the Euro decline below 1.5283, though traders may see an upside correction in the near term to test resistance at 1.5515. Immediate support is found at 1.5402. Sterling remained in a tight 26 pip range. Support is now at 1.9469, with near-term resistance at 1.9770.
Asia Session Highlights
New Zealand’s Employment Change surprised sharply to the upside, breaking from the hitherto downward trajectory of recent data. The ranks of the employed grew 1.2% in the second quarter versus expectations of only 0.2%. This brings annualized jobs growth back into positive territory at 0.7%. The Unemployment Rate increased to 3.9% as the number of people seeking work increased by 33k. All told, the releases suggest a greater number of people were looking for work, with most of them not finding it. On balance, these results are unlikely to affect the pace of RBNZ monetary easing as they hardly make a conclusive case for a rebound in the smaller antipode’s underlying fundamentals. NZDUSD initially rallied beyond the 0.72 mark on the headline Employment Change figure, only to return to prior levels in late Asian trading as the market digested the limited implications of what had been released.
Australia’s Employment Change figure also registered higher than expected, showing the economy added 10.9k jobs in July versus the expected 5k. The improvement was driven by aggressive expansion in the mining sector as firms rush to meet insatiable Chinese demand for coal and iron ore. AUDUSD rallied 49 pips in the first 10 minutes following the release but failed to maintain bullish momentum, falling back to the middle of its overnight range near 0.91. The lack of follow-through can likely be attributed to a dovish turn by RBA Governor Glenn Stevens. The bank chief announced the possibility of near-term rate cuts following the RBA’s policy meeting earlier this week. Stevens believes that the economy is on a slowing track regardless of the mining boom as the slump in other sectors continues to develop.
Euro Session: What to Expect
Forex traders will keep a close eye on tonight’s busy European session calendar. First, Germany is expected see Current Account and Trade Balance figures improve in June, printing at €12.0 billion and €15.5 billion, respectively. Imports likely contracted along with overall consumer demand, bringing the net figure higher. Sentiment has waned as Germans weigh up a slowing economy with higher living costs. Earlier today, Reuters cited unidentified German government officials as expecting the economy to contract between -0.75 and -1.5% in the second quarter, meaning the possibility of recession “can’t be ruled out.” Meanwhile, consumer prices printed at an annualized rate of 3.4% in June, the highest in at least 12 years.
Falling exports may prove outweigh the positive effects of lower import volumes on the headline trade balance figure. The global downturn and expensive Euro has hurt overseas demand for German goods, seeing Factory Orders fall -2.9% in June. As much is sure to be reflected in June’s Industrial Production data, with expectations of an improvement to 0.8% following May’s -2.4% likely to be upset by a downside surprise.
France is also due to release their June Trade Balance figure, with the deficit expected to improve to -€4.6 billion from -€4.7 billion in the preceding month. Here as in Germany, an improvement would likely come courtesy of shrinking demand for imported goods.
Naturally, the primary focus will be the back-to-back monetary policy announcements from the European Central Bank and the Bank of England. On the European front, Jean-Claude Trichet famously characterized the bank as having “no bias” at the last meeting. Traders are expecting the bank to issue another “no change” vote, leaving rates at 4.25%. In the UK, Mervyn King and company are also expected to keep benchmark rates unchanged. Minutes from the last meeting of the MPC saw the famously dovish Blanchflower as the only member voting for a rate cut. While Blanchflower may have co-opted a few others to see things his way, he is unlikely to get the voting majority he needs to ease borrowing costs this time around.
On balance, Euro Zone and UK economic fundamentals have continued to deteriorate all the while crude oil fell 20.5% or $30.13 per barrel. Traders will be looking for both monetary authorities to acknowledge these changes, with any allusion to near-term monetary easing likely to add fuel to the current dollar rally.
To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.
