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Euro at Risk on German IFO But S&P 500 Futures Warn of Risk Rebound

Euro at Risk on German IFO But S&P 500 Futures Warn of Risk Rebound

2012-06-22 07:05:00
Ilya Spivak, Head Strategist, APAC
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Talking Points

  • Euro at Risk as German IFO Threatens to Put Business Confidence at 2-Year Low
  • S&P 500 Stock Index Futures Hint Risky Assets May Recovery into the Week-End
  • EU FinMin Summit May Produce Clues on Next Batch of Crisis-Fighting Measures

The German IFO gauge of business confidence takes top billing on the economic calendar in European hours. Expectations call for the headline Business Climate measure to decline for a second month in June, hitting the lowest level in 27 months. Near-term correlation studies suggest interest rate expectations are increasingly edging out risk appetite trends as the main driver of Euro price action. This hints that signs of deepening recession are likely to weigh on the single currency as ECB easing expectations build.

The outcome may also prove negative for sentiment at large considering a recession in the currency bloc represents the most significant headwind for global output this year, punishing stocks-linked FX including the Australian and New Zealand Dollars. With that in mind, S&P 500 stock index futures are pointing cautiously higher in late Asian trade, warning that profit-taking may take hold of price action into the end of the trading week and pull risky assets higher despite negative news-flow.

Meanwhile, EU Finance Ministerscontinue a two-day meeting in Brussels. Coming on the heels of the G20 summit earlier this week where the region’s officials faced heavy pressure from global leaders to step up debt crisis containment efforts, the sit-down may see the emergence of some preliminary policy ideas. Concrete initiatives are likely to wait until the EU leaders’ summit next week, but traders will nonetheless continue to pay close attention to sideline commentary for early clues.

The US Dollar was little changed against its top counterparts in overnight trade as currency markets consolidated after a sharp flare-up of risk aversion over the preceding 24 hours. The greenback added 1.2 percent yesterday as global economic growth fears swelled following signs of deepening weakness in China, the Eurozone and the United States against a backdrop of fading hopes for Federal Reserve stimulus. Ben Bernanke and company opted to withhold an expansion of QE at a meeting of the FOMC rate-setting committee earlier in the week. Moody’s decision to downgrade the credit ratings of 15 of the world’s largest banks reinforced the dour mood.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Net Migration s.a. (May)

160

-

-800 (R+)

1:35

CNY

MNI Flash Business Sentiment Survey (JUN)

51.92

-

54.40

3:00

NZD

Credit Card Spending s.a. (MoM) (MAY)

0.4%

-

0.2%

3:00

NZD

Credit Card Spending (YoY) (MAY)

3.9%

-

3.7%

5:00

JPY

Supermarket Sales (YoY) (MAY)

-1.7%

-

-1.9%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

EUR

French Wages (QoQ) (1Q F)

0.8%

0.9%

Low

8:00

EUR

Italian Consumer Confidence Ind. Sa (JUN)

86

86.5

Low

8:00

CHF

KOF Institute June Economic Forecast

-

-

Low

8:00

EUR

German IFO - Business Climate (JUN)

105.6

106.9

Medium

8:00

EUR

German IFO - Current Assessment (JUN)

112.0

113.3

Medium

8:00

EUR

German IFO - Expectations (JUN)

99.8

100.9

Medium

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2417

1.2655

GBPUSD

1.5535

1.5691

--- 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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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