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Euro Open: Italian PPI May See Downside Surprise

Japanese data continued to disappoint overnight as Industrial Production underperformed in June. Australian Building Approvals contracted sharply, driving the Aussie Dollar lower. The data docket is noticeably spare on market-moving data in the forthcoming European session. Italian Producer Prices are expected to rise, but could issue a surprise print lower as an analogous metric from France underperformed on falling agriculture prices.

Key Overnight Developments

• Japanese Industrial Production Falls Short of Expectations
• Australian Building Approvals Weigh Down Aussie Dollar

Critical Levels

The Euro oscillated in a tight, 22-pip range overnight having sold off sharply past support at 1.5611 in New York hours. DailyFX Technical Currency Strategist Jamie Saettele reports the bias has shifted to favor the downside. Near-term support remains at 1.5569 with resistance near 1.5800. Sterling inched higher above the 1.98 level having lost ground in the US session. Support remains in the 1.9550-1.96 area, with resistance at 2.0075.

Asia Session Highlights

Preliminary estimates of Japanese Industrial Production underperformed, falling to 0.2% in the year to June versus forecasts calling for 0.6%. As much was to be expected as June saw the first decline in exports in four years on sagging demand from the US, Europe and China. June’s Vehicle Production reinforced the trend, falling to 4.5% in the year to June versus 6.8% in the preceding month.

Australian Building Approvals contracted sharply, falling to -7.8% in the year to June versus -4.1% expected. The result counterweighs yesterday’s upside surprise in HIA New Home Sales. The metric jumped to 4.0% having declined -5.0% in May on record immigration spurred by Australia’s mining boom. The releases together suggest immigrants are absorbing current inventory but the stock of new housing is not being replenished. All told, this means immigration may offer support to Australian real estate prices as a housing crisis spreads elsewhere.

Euro Session: What to Expect

The data docket is noticeably spare on market-moving data in the forthcoming European session. Italian Producer Prices are expected to print higher, rising to 8.2% in the year to June versus 7.5% in the preceding month. Yesterday saw the analogous metric underperform in France to print at 7.3% versus 7.4% expected. Interestingly, agriculture was the only sector to post an annualized decline in price growth rates. Agriculture makes up a large portion of the economy in Italy as in France, suggesting the metric may have room to print lower than expected.

Bloomberg Purchasing Manager Indices covering the Italy, France, Germany and the Euro Zone as a whole will likely show sentiment deteriorating further in July. Euro-Zone Business and Consumer Confidence readings will likely reinforce the downbeat mood. European manufacturing data has turned increasingly negative: PMI has fallen below the 50 “boom-bust” level while industrial production and new orders metrics have substantially declined. On the consumption front, sentiment has been badly battered as Europeans wonder how they will cope with a slowing economy and rising living costs simultaneously.

The session concludes with July’s KOF Swiss Leading Indicator. Expectations call for a reading at 0.95, amounting to the first fall below the 1.0 level since 2003.

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