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Euro Open: Will an Empty Calendar Help the Dollar Higher?

Overnight economic data from Australia and Japan failed to stir any reaction, offering nothing that has not already been priced in by the market.Regardless, the market saw substantial activity as the dollar gained across the board. While no definitive catalyst for the move is readily apparent, the range of explanations has included poor expectations of German Industrial Production as well as reports of an undisclosed Iranian response to an international offer of incentives should Tehran suspend uranium enrichment. The true source of the dollar’s strength is likely much simpler, as a relatively clear calendar allows some room for dollar bulls to capitalize without being deterred by US data.

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Key Overnight Developments

• Australian and Japanese Data Fails to Stir Reaction
• Dollar Advances Across the Board Ahead of G8 Summit


Critical Levels

The Euro was broadly sold at the weekly open with EURUUSD surpassing last week’s lows to reach 1.5630. As noted in Jamie Saettele

Daily Technical Outlook, the pair is expected to continue lower this week with the next level of support found at 1.5534. The sterling followed the Euro lower with GBPUSD reaching below near-term support at 1.98 to reach an overnight low of 1.9759. The next level of support is found at 1.9744. A return to upside momentum sees resistance at 2.0175.


Asia Session Highlights

Overnight economic data from Australia and Japan failed to stir any reaction, offering nothing that has not already been priced in by the market. AiG’s Performance of Construction Index showed modest improvement, printing at 40.3 in June versus 36.9 in the previous month. That said, the index remains below the 50 boom-bust level and continues to indicate contraction. June’s ANZ Job Advertisements continued to decline, falling an additional -3.0% following an easing of -1.7% in May. All this is not surprising as the RBA-engineered slowdown is helped along by booming commodity prices to stifle growth. Japanese Official Reserve Assets increased a hair in June, with the release completely overlooked as usual.

Regardless, the market saw substantial activity as the dollar gained across the board. While no definitive catalyst for the move is readily apparent, the range of explanations has included poor expectations of German Industrial Production as well as reports of an undisclosed Iranian response to an international offer of incentives should Tehran suspend uranium enrichment. The true source of the dollar’s strength is likely much simpler, as a relatively clear calendar allows some room for dollar bulls to capitalize without being deterred by US data.


Euro Session: What to Expect

Today’s session brings a slew of economic data to awaken markets after Friday’s quiet session. Germany’s June Wholesale Price Index will likely go unnoticed as last week’s timid ECB suggests Trichet and company won’t be raising rates in the near term. Switzerland’s Unemployment Rate will be far more interesting as the SNB is banking on a slowing economy to ease inflationary pressure. Last week’s June CPI release showed prices rising at 2.9% versus the expected 3.1% which took some of the pressure off the bank to issue a rate hike. An increase in unemployment would go further still in validating the SNB’s preferred scenario. UK Industrial Production is expected to show negative annualized growth for the first time since March of last year. Supporting the downside scenario, last week saw May’s Manufacturing PMI result revised to read below the boom-bust level at 49.5.

The Sentix Investor Confidence reading for the Euro Zone may prove to be the session’s highlight. We noted last week that it is reasonable to suspect US dollar-denominated assets will benefit from safe-haven capital flows as expectations of decoupling from America’s malaise give way to a broadly accepted global slowdown scenario. This hypothesis would be supported should July’s Sentix reading validate expectations of a drop to 2.5 from 5.2 in the preceding month, suggesting eroding confidence in the world’s second-best capital market. German Industrial Production is expected to further bearish sentiment towards the single currency with the annualized reading expected to decline to 3.2% in May. This would show substantial weakness for Euro Zone’s industrial powerhouse and likely make rate hikes even more remote than they are at present.

To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.