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Euro at Risk as French and German Finance Ministers Meet, Aussie Sold

Euro at Risk as French and German Finance Ministers Meet, Aussie Sold

Ilya Spivak, Head Strategist, APAC

Talking Points

  • Euro at Risk Amid Continued Dithering as French, German FinMins Meet
  • German IFO Drop Unlikely to Produce Lasting Reaction from FX Markets
  • Dallas Fed Manufacturing Survey May Dent QE3 Hopes, Boost US Dollar

The US Dollar consolidated against most of its top counterparts as an absence of big-ticket catalysts left currency markets in consolidation mode. The Australian Dollar narrowly underperformed as year-to-date Chinese Industrial Profits fell at an annual pace of 2.7 percent, marking the sharpest contraction in five months. The outcome stoked fears about fading Chinese demand for Australian exports, the key driver behind the mining boom that has kept the country’s economy relatively well-supported through the 2008 crisis and its aftermath.

Looking ahead, a meeting between the German and French Finance Ministers (Wolfgang Schauble and Pierre Moscovici, respectively) is in focus. The two are expected to discuss goals for Greece’s debt-reduction efforts, but concrete progress seems unlikely. Indeed, Eurogroup leader Jean-Claude Junker and German Chancellor Angela Merkel both signaled that any decision on extending the deadline for Athens to complete its austerity efforts will have to wait until inspectors from the EU/ECB/IMF “troika” complete their assessment of Greece’s progress.

With that in mind, the lack of action itself may prove to weigh on the Euro. Anticlimactic developments late last week revealed investors’ frustration with a lack of directional cues – whether positive or negative – from Eurozone officials. Markets may be approaching a juncture where price action forces policy once again, with selling pressure emerging amid signs of continued dithering.

On the data front, the German IFO gauge of business confidence is in focus. Expectations call for the headline Business Climate reading to drop to 102.7, the lowest since March 2010. The outcome seems unlikely to produce a lasting impact on the Euro in and of itself considering its limited implications for ECB monetary policy, where traders remain preoccupied with the details of the central bank’s opaque bond-buying scheme.

Later in the session, the spotlight shifts to the Dallas Fed Manufacturing Surveyas traders set the backdrop for Friday’s much-anticipated speech from Ben Bernanke at the Jackson Hole central bank symposium, which many hope will bring an announcement of QE3. Expectations call for a narrow improvement in August after the metric hit a 10-month low in July. Such a result may turn the markets’ attention to the recent improvement in US economic data, denting stimulus bets and boosting the greenback.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

Hometrack Housing Survey (MoM) (AUG)

-0.1%

-

-0.1%

23:01

GBP

Hometrack Housing Survey (YoY) (AUG)

-0.5%

-

-0.5%

1:30

CNY

Industrial Profits YTD (YoY) (JUL)

-2.7%

-

-2.2%

Euro Session: What to Expect

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

-

EUR

French, German Finance Ministers Meet

-

-

Medium

6:00

EUR

German Import Price Index (YoY) (JUL)

1.2% (A)

1.3%

Low

6:00

EUR

German Import Price Index (MoM) (JUL)

0.7% (A)

-1.5%

Low

8:00

EUR

German IFO – Business Climate (AUG)

102.7

103.3

Medium

8:00

EUR

German IFO – Current Assessment (AUG)

110.8

111.6

Medium

8:00

EUR

German IFO – Expectations (AUG)

95.0

95.6

Medium

9:30

EUR

Germany to Sell €3B in 12mo Bills

-

-

Low

13:00

EUR

France to Sell €7B in 3-, 6- and 12-mo Bills

-

-

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2435

1.2559

GBPUSD

1.5761

1.5852

--- 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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