Currency Markets Look to US Consumer Confidence Data for Direction

Talking Points

• German PPI Likely to Pass Quietly as Debt Crisis Dominates ECB Outlook
• Dollar May Read UofM Consumer Confidence Print in Terms of Fed QE3 Bets

The economic calendar is quiet in European hours, with German PPI figures headlining a short docket of second-tier event risk. Expectations call for wholesale inflation to slow to an annual pace of 1.2 percent in July. The report is likely to pass with little fanfare given its limited implications for near-term ECB monetary policy. Indeed, traders are far more concerned with the central bank’s forthcoming “non-standard” measures aimed at quelling the Eurozone debt crisis than with price growth trends, particularly in light of relative stability on the inflation front over recent months.

Later in the session, the spotlight turns to the University of Michigan gauge of US Consumer Confidence. Expectations call for the measure to edge slightly lower to 72.2 in August from 72.3 in the prior month. Traders will look to the report to gauge the degree of follow-though on July’s stronger-than-expected employment and retail sales figures. Private consumption is easily the most significant driver of US economic growth, meaning signs of improvement here would likely overshadow disappointing results from the Empire and Philadelphia Fed manufacturing survey readings published earlier in the week.

In terms of gauging the data’s implications for price action, traders’ response to the Retail Sales report suggests an upside surprise may be interpreted in terms of reducing Fed stimulus bets, boosting the US Dollar amid receding dilution fears. Price action patterns have been inconsistent of late however as the late-summer lull takes a toll on trading volumes. Indeed, turnover in FX futures tracking the major currencies has declined substantially over the past several weeks. That means finding clear trends in whatever happens over the coming 24 hours will probably prove challenging.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com