ZEW Drop Produces Little Impact on the Euro

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·          NZD Retail Sales drop for second straight <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />month

·          JPY Capacity Utilization matches 14 year highs

·          UK CPI above 2% BoE targets

·          ZEW drops another 10 points on rates and equity market weakness

The surprisingly sharp drop in the ZEW survey produced little reaction in the EUR/USD which traded within 10 points of Mondays New York close. The ZEW investor sentiment survey slipped to 37.8 from 45.0 expected and nearly 13 points lower than   the prior months reading of 50. The dourness of EZ investors was driven primarily by the trifecta of higher energy prices, increasing EZ interest rates and rapidly declining equity markets in the region. This is the lowest reading in the past 8 months and the fourth consecutive period of declines in the index. However, the data may provide little future insight to currency traders.  Over the past few months the ZEW contrasted  sharply with the IFO survey which has been a far better predictor of Euro-zone growth

In Japan today, more positive news on the economic front as Japanese Capacity Utilization matched 14 year highs reaching 106.6. The release offered further proof that the countrys economy continues to operate on all cylinders. Economics Minister Yosano noted that BOJ must end ZIRP, noting that the policy was abnormal.  Currency traders however, will focus on  tomorrows BoJ Monetary Policy meeting for clues to any near term moves. So far Governor Fukui has remained steadfastly non-committal, but the pressure to  raise rates is increasing daily. One possible reason for hesitation from the Central Bank is the recent weakness in the Japanese equity market.  Today the Nikkei posted the biggest one day loss in two years with index now down more than 3000 points off yearly highs. Some market participants feel that the Bank may choose to keep ZIRP in place until the stock market stabilizes, not wishing to exacerbate the already volatile situation.

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