Mid-Day Report: EUR/USD Recovers Earlier Losses after US Existing Home Sales Missed Expectation

Market Overview | Written by ActionForex.com | Jul 24 08 14:13 GMT |

Euro was sent lower against dollar and yen earlier today on a string of disappointing data. Nevertheless, the common currency regains ground in early US session after existing home sales from US miss expectations. Existing home sales dropped more than expected by -2.6% mom to 4.86m annualized rate in Jun. Also, jobless claims surged back to above 400k to 406k. The Japanese yen, on the other hand, rebounds on weakness in European and US stock markets. Sentiments in Eurozone businesses continued to deteriorate. German Ifo business climate fell much more than expected from 101.2 to 97.5 in Jul, hitting the lowest level since mid 2005. Current situation component already dropped further from 108.3 to 105.7. Expectation component dropped from 94.6 to 90.0. The indices of trade & industry, construction, wholesaling and retailing are all in negative territory with manufacturing index being positive only. In addition, PMI manufacturing and services both fell more than expected to 47.5 and 48.3 respectively in Jul, remaining in contraction region below 50. The data argues that growth in the Eurozone, including in Germany, will continue to slow throughout the rest of the year and into 2009. Eurozone current account deficit also came in much wider than expected at -21.4b in May. On the other hand, Sterling was hit even hard after disappointments from retail sales report. Sales dropped more than expected by -3.9% mom in Jun, biggest fall since at least 1986. Yoy rate also dropped down from 7.9% to 2.2%. Sterling was sold off across the board as the data dampened hope for a rate hike from BoE even though minutes showed Besley surprisingly voted for a hike earlier this month. Kiwi remains pressured after RBNZ's surprised 25bps cut in OCR and issued a rather dovish statement overnight. In the accompanying statement, RBNZ noted that "economic activity is likely to remain weak over the remainder of 2008," and "provided that the outlook for inflation continues to improve and there is no excessive exchange-rate depreciation, we would expect to lower the OCR further." NZD/USD fell sharply and reaches as low as 0.7402 today, over 300 pips off this week's high of 0.7761 and near to 10% off this year's high of 0.8231. Japanese trade surplus released overnight shrank to 138.6b on strong growth in imports by 16.2% and a -1.7% drop in imports. EUR/USD Mid-Day Outlook Daily Pivots: (S1) 1.5646; (P) 1.5721; (R1) 1.5773; More EUR/USD recovers after dipping lower to 1.5638 earlier today. Nevertheless, outlook remains unchanged for the moment. Further decline cannot be ruled out at this point. But still, fall from 1.6038 is treated as a correction to rise from 1.5302 only as long as 1.5611 support holds. Above 1.5797 minor resistance will indicate that such correction could have completed and turn intraday bias back to the upside. Further break of 1.5944 resistance will bring retest of 1.6038 high. However, note that a break below 1.5611 support will indicate that rise from 1.5302 has completed and open up a few short term bearish scenarios that focuses on 1.5284/5301 support zone. In the bigger picture, medium term consolidation from 1.6019 should have completed at 1.5302 already. Decisive break of 1.6019 record high will confirm that medium term up trend has resumed and bring rise to 61.8% projection of 1.4309 to 1.6019 from 1.5284 at 1.6341 first. However, note that sustained break below 1.584/5301 support zone will argue that EUR/USD has completed a double top formation and suggest that a medium term top is in place and deeper decline should then be seen to 1.4309/4966 support zone.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
21:00	NZD	RBNZ rate decision Jul	8.00%	8.25%	8.25%
23:50	JPY	Japan Trade balance (jpy) Jun	138.60B	506.0B	365.6B	362.2B
23:50	JPY	Japan Export Y/Y Jun	-1.70%	N/A	3.70%
23:50	JPY	Japan Import Y/Y Jun	16.20%	N/A	4.40%
07:30	EUR	Germany PMI service Jul	53.3	51.5	52.1
07:30	EUR	Germany PMI manufacturing Jun	50.9	52	52.6
08:00	EUR	Germany Ifo index Jul	97.5	100	101.3	101.2
08:00	EUR	Eurozone PMI manufacturing Jul	47.5	48.7	49.2
08:00	EUR	Eurozone PMI service Jul	48.3	48.8	49.1
08:00	EUR	Eurozone Current account (euro) May	-21.4B	N/A	-9.2B	-7.4B
08:30	GBP	U.K. Retail sales M/M Jun	-3.90%	-2.50%	3.50%	3.60%
08:30	GBP	U.K. Retail sales Y/Y Jun	2.20%	4.40%	8.10%	7.90%
12:30	USD	U.S. Jobless claims	406K	375K	366K	372K
14:00	USD	U.S. Existing home sales Jun	4.86M	4.94M	4.99M
14:00	USD	U.S. Existing home sales M/M Jun	-2.60%	-1.00%	2.00%