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Euro May Gain as German Unemployment Rate Drops to Match 16-Year Low

Euro May Gain as German Unemployment Rate Drops to Match 16-Year Low

2010-07-28 05:26:00
Ilya Spivak, Sr. Currency Strategist
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Key Overnight Developments

  • New Zealand Dollar Falls as RBNZ Talks Down Rate Hike Outlook
  • NZ Trade Surplus Narrows as Stronger Currency Weighs on Exports
  • Yen Gains as Asian Stocks Follow Wall St Lower on Fed Beige Book

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2972

1.3044

GBPUSD

1.5564

1.5657

The Euro and the British Pound ticked marginally higher in overnight trade, adding 0.1 percent each against the US Dollar. On balance, positioning has been little changed over the past 24 hours, with both currencies stuck in well-defined ranges. We remain flat EURUSD and GBPUSD.

Asia Session Highlights

CCY

GMT

EVENT

ACT

EXP

PREV

NZD

21:00

Reserve Bank of New Zealand Rate Decision (JUL 28)

3.0%

3.0%

2.75%

NZD

22:45

Trade Balance (New Zealand dollars) (JUN)

276M

368M

768M (R-)

NZD

22:45

Imports (New Zealand dollars) (JUN)

3.51B

3.36B

3.43B (R+)

NZD

22:45

Exports (New Zealand dollars) (JUN)

3.78B

3.5B

4.2B

NZD

22:45

Balance (YTD) (New Zealand dollars) (JUN)

639M

729.5M

32M

JPY

23:50

Retail Trade s.a. (MoM) (JUN)

0.4%

0.4%

-2.0%

JPY

23:50

Retail Trade (YoY) (JUN)

3.2%

3.2%

2.9% (R+)

JPY

23:50

Large Retailers’ Sales (JUN)

-3.0%

-4.0%

-3.9% (R+)

NZD

3:00

Money Supply M3 (YoY) (JUN)

-3.3%

-

-3.1%

The New Zealand Dollar fell after a widely expected interest rate hike from the Reserve Bank of New Zealand as the central bank’s Governor Alan Bollard spoke out directly against the currency’s recent appreciation and downplayed the extent of further tightening.

The RBNZ chief said that although “the level of the [interest rates] is still very supportive of economic activity” even after today’s increase, “pace and extent of further [rate hikes] is likely to be more moderate than was projected” as recently as June. Speaking specifically about the exchange rate, Bollard said, “The New Zealand dollar has appreciated in recent weeks. This appreciation is inconsistent with the softening in New Zealand’s economic outlook and moderation in our export commodity prices.” Commenting on the outlook for prices, Bollard noted that “government-related price changes are likely to temporarily push annual CPI inflation above 3 percent.” adding the RBNZ does not expect this to have a lasting impact on underlying price growth, thereby deflating any bets on accelerated rate hikes as the data crosses the wires in the months ahead.

The Kiwi fell against all of its major counterparts, down nearly 1 percent versus the spectrum of major currencies. Interestingly, the New Zealand unit proved most resilient against its Aussie counterpart, down by a relatively small 0.6 percent after yesterday’s disappointing Australian CPI data dashed hopes for further tightening in the largest antipodean country. Today’s rate hike was widely expected, with a Credit Suisse gauge of priced-in expectations showing traders saw a 98 percent chance of an increase ahead of the announcement.Separately, New Zealand’s Trade Balance surplus narrowed to 276M in June from a revised 768M in the previous month as exports fell 9.8 percent while imports advanced 2.3 percent. Sales to Australia, China and Japan – New Zealand’s top three trading partners – fell 5.6, 15.9 and 14.3 percent respectively. A stronger currency may have accounted for the drop in overseas sales after the New Zealand Dollar added 0.5 percent in trade-weighted terms in June against its top counterparts. Indeed, a gauge from ANZ Bank showed the prices for the island nation’s top export commodities in terms of the local currency fell for the first time in five months in June.The Japanese Yen tracked broadly higher as carry trades funded cheaply in the perennially low-yielding currency followed stocks lower in overnight trade. Asian exchanges followed Wall Street lower after the US Federal Reserve’s Beige Book – a survey of economy conditions compiled from the central bank’s branches around the country – revealed a slowdown in the US economic recovery.

Euro Session: What to Expect

CCY

GMT

EVENT

EXP

PREV

IMPACT

GBP

6:00

Nationwide House Prices n.s.a. (YoY) (JUL)

7.0%

8.7%

Low

GBP

6:00

Nationwide House Prices s.a. (MoM) (JUL)

-0.3%

0.1%

Low

EUR

6:45

French Producer Prices (MoM) (JUN)

0.3%

0.0%

Low

EUR

6:45

French Producer Prices (YoY) (JUN)

3.9%

4.3%

Low

EUR

7:30

Italian Business Confidence (JUL)

96.4

96.1

Low

EUR

7:55

German Unemployment Change (JUL)

-20K

-21K

High

EUR

7:55

German Unemployment Rate s.a. (JUL)

7.6%

7.7%

High

EUR

8:00

Italian Hourly Wages (MoM) (JUN)

0.2%

0.1%

Low

GBP

8:30

Net Consumer Credit (JUN)

0.2B

0.3B

Medium

GBP

8:30

Net Lending Sec. on Dwellings (JUN)

1.0B

1.2B

Low

GBP

8:30

Mortgage Approvals (JUN)

48.8K

49.8K

Medium

GBP

8:30

M4 Money Supply (MoM) (JUN F)

-

0.0%

Low

GBP

8:30

M4 Money Supply (YoY) (JUN F)

-

3.0%

Low

EUR

9:00

Euro-Zone Business Climate Indicator (JUL)

0.39

0.37

Low

EUR

9:00

Euro-Zone Industrial Confidence (JUL)

-5

-6

Low

EUR

9:00

Euro-Zone Consumer Confidence (JUL F)

-14

-14

Low

EUR

9:00

Euro-Zone Economic Confidence (JUL)

99.1

98.7

Medium

EUR

9:00

Euro-Zone Services Confidence (JUL)

5

4

Low

German Unemployment figures headline a busy economic calendar in European hours, with expectations calling for the economy a 20,000 decline to bring the jobless rate down to 7.6 percent in July, a reading equivalent to the nearly two-decade low previously recorded in November 2008. The outcome follows May’s 3 percent increase in Retail Sales – the largest monthly upswing in nearly three and a half years – as well as an unexpected uptick in consumer confidence reported earlier this week. On balance, this may prove to boost the Euro on hopes that the Euro Zone’s largest economy may muster enough private demand to keep its own and the currency bloc’s recovery afloat amid a lurch toward austerity as the region unwinds its hefty sovereign debt burden. Separately, a gauge of Euro Zone Economic Confidence is expected to rise to 99.1 in July, marking the highest reading in three months.

Turning to the UK, Mortgage Approvals are expected to fall for the second consecutive month in June while Net Consumer Credit growth slows from the previous month over the same period. The figures will reinforce dovish comments from BOE policymakers delivered in testimony to the Parliament’s Treasury Committee, where governor Mervyn King downplayed the stronger-than-expected second quarter GDP result to stress lingering uncertainty about the recovery in general and inflation in particular, signaling monetary policy is firmly stuck in accommodative territory for the time being.

On the sentiment front, US equity index futures are trading up 0.2 percent in late Asian hours, hinting that risk appetite may have scope to recover in the coming session. Another batch of second-quarter earnings reports from twenty six S&P 500 companies as well as weekly US Jobless Claims figures are due late into the session.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

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