Euro Pushed Lower by Weak ZEW

Talking Points<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

·          <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Tertiary Index continues to expand

·          UK Inflation strengthens surprisingly

·          ZEW Dives to 14 month low

·          US TICs and PPI on tap

     The ZEW survey of investor confidence sank to a 14 month low as high oil prices and volatile EZ equity markets in the month of July depressed sentiment for the 7th consecutive month.  The news briefly pushed the EUR/USD below the psychologically important 1.2500 level but the pair recovered rapidly although it  remained lower on the day.  As some analysts were quick to point out the ZEW results demonstrated an interesting dichotomy with the Current Situation Component actually rising every month since the start of the year while the Future Expectations component has continued to decline. The currency markets tepid reaction to the numbers can be attributed to the fact that the ZEW survey tends to have much less forecasting value on the future direction of the EUR/USD trade than the more important IFO survey due  the 26th of July. Nevertheless, for the woe-begotten euro bulls who have suffered a 450 point decline against the greenback over the past several weeks, tonights news offered no relief.

     Attention should soon turn to the US session and euro longs may yet be vindicated if todays US economic data disappoints to the downside.  The PPI report will be released first and the focus will be on the core reading. If as expected, PPI rises a modest 0.2% demonstrating that inflationary pressures remain contained, some market participants may question the notion that the Fed will raise rates once again in August. However, if the numbers print materially higher then the Fed  rate hike is all but assured as the central bank will choose to combat the threat of inflation rather than address the recent slowdown in growth. The greenback may face further problems later on in the day if the TICs data once again misses the mark. Concern could heighten that for second month in a row  the surplus of capital inflows has failed to offset the burgeoning Trade deficit.  However, if inflationary data proves strong, the interest rate differential story may overcome the worries about US Balance Sheet position and the pair could probe the 1.2500 level once again.


FX Upcoming