Fundamental Headlines
• Global-Bank Deal Targets Reserves– Wall Street Journal
• Yen Extends Climb Against Dollar – Wall Street Journal
• Eurozone Worries Linger Over Markets - Financial Times
•Greek Debt Deals Hidden From EU Probed as 400% Yield Gap Shows Bond Doubts - Bloomberg
• Swiss Franc Reaches Record Versus Euro on Concern Banks, Economy Struggle – Bloomberg
EUR/USD: The trade balance in Europe’s largest economy scaled back to 13.5 billion in July from 14.2 billion the month prior amid expectations of 13.0 billion. At the same time, exports unexpectedly declined 1.5 percent, while imports dropped 2.2 percent during the same period. The decline in exports does not bode well for Germany in that growth in the region has been largely supported by exports. With the bloc planning to implement tough austerity measures amid their high budget deficits, continuing downward pressure on German exports are likely to be the result in the upcoming months. Meanwhile, Bloomberg News reported that Greece still hasn’t disclosed the full details of secret financial transactions it used to conceal its debt. This trails recent rumors that European banks have underreported their exposures to the sovereign debt crisis at the previous stress tests. If these acquisitions are indeed true, this will validate my outlook for the EURUSD testing 1.2500 in the near term.
GBP/USD: House prices in the U.K. rose 0.2 percent in August amid expectations for a 0.5 percent decline, while the annualized rate jumped 4.6 percent. Despite the better than expected report, house prices are likely to come under pressure in the upcoming months as households face a weak labor market, tight credit conditions, and fiscal austerity measures imposed by the government. Meanwhile, manufacturing and industrial production both rose 0.3 percent in July from the previous month. Taking a look at the currency markets, the British pound has halted its two day decline against he U.S. dollar; however, as price action is capped by the 20-day moving average, downside risks remain. I will maintain my short position, with an open target and a stop at 1.5600. GBP traders will now shift their focus to the Bank of England interest rate decision which will be released tomorrow, while the meeting of the minutes will follow on September 22nd.
Written by Michael Wright, Currency Analyst
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast
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