Daily Report: Focus on German ZEW and US Housing

Market Overview | Written by ActionForex.com | Aug 19 08 07:55 GMT |

Euro remains pressured and breaks through last week's low against dollar and yen as focus is turning to German ZEW economic sentiments. After deteriorating sharply from -52.4 to record low of -63.9 in Jul, the Germany ZEW index is expected to improve slightly from -62.0 in Aug. On the other hand, Eurozone ZEW is expected to drop further to -65. With increasing concern on persistently strong inflation and deeper slowdown in the Eurozone economy, risks to the ZEW reading is on the downside and could send the vulnerable Euro further south in case of downside surprises. Released in early European session, German PPI accelerated to 27 year high of 8.9% yoy in Jul. Judging from the price actions in USD/JPY, it seems like risk aversion is the mildly stronger theme in the markets at this moment than weakness in commodity prices. There is growing concern that US government will bail out Fannie Mae and Freddie Mac. Weakness in the US stock markets is followed by Asian and then the European markets even though crude oil and gold remains pressured throughout. BoJ left target overnight call rate unchanged at 0.5% as widely expected. The statement indicated that the bank had little option other than being on hold. CPI inflation is expected to be "somewhat higher" over the coming months while economic activity has slowed sharply. RBA minutes echoed prior communications and reaffirmed the bank's easing bias. The minutes said that "less restrictive monetary conditions could soon be called for, otherwise the risk of a deeper and more persistent slowing in the economy would increase." Focus in the US session will be on new residential construction data and PPI inflation from US. Jul's strong rebound of 9.1% from 977k in housing starts was a surprise but economists expect housing starts to resume down trend and dive further even steeper to 17 year low of 960k annualized rate. Building permits is also expected to drop again to 980k. PPI inflation is expected to accelerate further to 9.4% yoy with core PPI rising to 3.2% yoy in Jul. EUR/USD Daily Outlook Daily Pivots: (S1) 1.4651; (P) 1.4709; (R1) 1.4752; More EUR/USD's recovery was brief and mild and recent decline resumes again by dipping further to 1.4629. While intraday downside momentum continues to diminish, there is still no confirmation of a bottom yet. Further decline is still expected as long as 1.4830 minor resistance holds, to next target of key medium term support at 1.4309. Though, above 1.4830 will indicate that a short term bottom is in place with bullish convergence condition in 4 hours MACD and RSI. In such case, stronger rebound should be seen to 1.5284 double top neckline resistance before staging another fall. In the bigger picture, the double top reversal pattern (1.6019, 1.6038) serves as an important signal of completion of medium term rise from 1.1639 (05 low). Decisive break of 55 weeks EMA (now at 1.4936) last week adds more credence to this case. While it's still early to conclude, recent development continues to build up the case of a medium term reversal. Focus will now be on a) whether key support level of 1.4309, (38.2% retracement of 1.1639 (05 low) to 1.6038 at 1.4358, 61.8% retracement of 1.3262 to 1.6038 at 1.4322) will hold; b) whether next trend line support (1.1825, 1.2483, now at 1.4329) will hold; c) whether weekly MACD will turn negative and d) whether monthly MACD will cross below signal line.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
1:30	AUD	RBA Minutes Aug
3:30	JPY	BoJ Rate Decision	0.50%	0.50%	0.50%
6:00	EUR	Germany PPI M/M Jul	2.00%	0.70%	0.90%
6:00	EUR	Germany PPI Y/Y Jul	8.90%	7.60%	6.70%
9:00	EUR	German ZEW Econ. Sent. Aug		-62	-63.9
9:00	EUR	Eurozone ZEW Econ. Sent. Aug		-65	-63.7
12:30	USD	U.S. Building permits M/M Jul		N/A	16.40%
12:30	USD	U.S. Building permits Jul		0.98M	1.14M
12:30	USD	U.S. Housing starts M/M Jul		N/A	9.10%
12:30	USD	U.S. Housing starts Jul		0.96M	1.07M
12:30	USD	U.S. PPI M/M Jul		0.60%	1.80%
12:30	USD	U.S. PPI Y/Y Jul		9.40%	9.20%
12:30	USD	U.S. PPI core M/M Jul		0.20%	0.20%
12:30	USD	U.S. PPI core Y/Y Jul		3.20%	3.00%
12:30	CAD	Canada Wholesale sales M/M Jun		0.70%	1.60%