Euro Open: More Earnings, More Dollar Strength?

Daily Forex Fundamentals | Written by DailyFX | Jul 18 08 05:39 GMT |

Although the handful of overnight releases failed to stir the markets, the data did offer some surprising insights. Euro-Zone data dominates the calendar in the forthcoming session, with Trade Balance figures easily the most interesting item on the docket. On balance, recent price action appears to be driven solely by the price of oil and the US earnings calendar for the Financials sector. To that effect, the European trading may remain quiet awaiting Citigroup's earnings announcement late into the session. Key Overnight Developments Meeting Minutes Reveal Some BOJ Members Advocate Focus on Growth, Not Inflation Australian Import Prices Ease on Falling Commodities Prices, Oil an Exception Critical Levels Euro trading saw kneejerk price action overnight, swinging in a wide 40-pip range around the 1.5850 level. DailyFX Technical Strategist Jaime Saettele has called for a sustained break above the 1.60 mark to target 1.6325. Support is seen at 1.5611. Sterling gave ground to the US dollar overnight, falling below the 2.00 level yet again. Short-term support is seen in the 1.9925-1.9884 area, while resistance remains at 2.0175. Asia Session Highlights Although the handful of overnight releases failed to stir the markets, the data did offer some surprising insights. The Bank of Japan released the minutes from their June interest rate policy meeting. The log revealed the bank's policymakers to be deeply divided about the future course of monetary decision-making. While a few members sounded familiar alarms about inflationary pressure from rising oil prices, a growing number of policymakers took the opinion that the commodities rally has not produced second-round price growth (such as growth in wages). To that effect, those members stressed the bank must focus most on slowing economic growth. The markets proved mute to the release with USDJPY oscillating in a tight range overnight. The Export Price Index outperformed to print at 13.5% versus 10% expected. The spike was driven by a 35% increase in the price mineral fuels and a 20.9% increase in the price of crude materials. Interestingly, the Import Price Index printed lower at 1.4% versus expectations of 2.2% as a rise in the cost of oil and other crude materials was offset by a -7.1% drop in the price of other commodities. The reading may prove to be some of the first evidence that the global commodities rally has started topping out, with oil prices sticky at higher levels because of crude's status as an anti-US dollar instrument. Euro Session: What to Expect Euro-Zone data dominates the calendar in the forthcoming session. German Producer Prices are expected at the highest levels since 1982 with the annualized growth rate at 6.5%. Businesses pass on higher production costs to their customers by way of higher prices for finished goods. This means a rise in Producer Prices is likely to boost Consumer Prices and thereby the overall inflation rate. As we had noted earlier this week, '[accelerating inflation complicates] the precarious position of the ECB in the coming months. The bank has been adamant that its focus remains inflation, suggesting a rate hike is due to contain the price level. And yet, Jean-Claude Trichet and company issued a 'no bias' reading at their last meeting, suggesting they were not as deaf to calls for supporting sagging growth as they initially appeared. The only way for policymakers to have their cake and eat it too would be if oil prices continued lower. Removing that source of inflationary pressure would open the door for the looming recession to take care of price growth. This goldilocks scenario aside, the policy outlook will continue to remain uncertain, fueling kneejerk volatility in the markets.' Italian Industrial Orders and Industrial Sales are expected to decline in May, losing -1.5% and -0.6% since April, respectively. The release is likely to validate downside forecasts. About 60% of all Italian exports are headed for the European Union and the expanding slowdown in the region will surely take its toll on the manufacturing sector. Underscoring the malaise spreading in Germany and the Euro-Zone, the ZEW survey of analysts' sentiment printed at the lowest reading since the 1992 recession earlier this week. May's Euro-Zone Trade Balance figures are easily the most interesting item on the docket. April saw European firms cope with the stronger Euro and waning US demand by focusing on emerging markets. All told, exports rose 6.2% in April, making for a monthly trade surplus of €2.2 billion. China and Russia led the increase, with export volumes rising 16% and 21% respectively. Traders will look for signs that this pattern is sustainable amid otherwise deteriorating European data. The release may prove disappointing to Euro bulls as yesterday revealed that the Chinese economy slowed in the second quarter, growing at 10.1% versus 10.6% in the preceding period. On balance, recent price action appears to be driven solely by the price of oil and the US earnings calendar for the Financials sector. To that effect, the European trading may remain quiet awaiting Citigroup's earnings announcement late into the session. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. 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