Mid-Day Report: Euro Recovers as Investor Confidence Beat Expectations

Euro recovers after initial dip on better than expected confidence data. Eurozone Sentix investor confidence unexpectedly rose to 10.1 in July. Sentix noted that “after a four-month weakening phase, growth expectations for the euro zone are now stabilizing.” And, such stabilization “coincides with the new monetary policy measures of the European Central Bank.” Thought, it also emphasized that “real boost for the euro zone comes from the world economy” including improvements in US and Japan. Also released from Europe, German industrial production dropped -1.8% mom in May. Swiss unemployment rate was unchanged at 3.2% in June and Foreign currency reserves rose to CHF 449.6b in June.

ECB executive board member Coeure said that the central bank will keep rates low for a long period of time to ensure monetary stability. Meanwhile, he also urged governments to “invest in Europe” and that’s “the only way out”. And, he said “one should expect a divergence of monetary conditions between the euro zone and the United States and Britain – where interest rates will at some point be lifted.” Governing council member Noyer said that “even if the risk of deflation seems to have been avoided, we have … price increases that are too low.” And, Noyer was surprised on “the weak impact of the monetary easing” on prices.

In the quarterly report, BoJ reported that all nine regions saw moderate recovery in spite of the April tax hike. Four regions upgraded the assessment on capital expenditure to picking up. Views on household spending was left unchanged as moderately recovering. It noted that “consumer spending is likely to stay firm as a trend with the effect of the tax hike seen subsiding around the summer as wage and income conditions improve.” BoJ governor Kuroda reiterated that the central bank will maintain the ultra loose monetary policy as long as necessary to sustain the 2% inflation target. And, “the BoJ will examine upside and downside risks to the economy and prices, and adjust monetary policy as needed.” Released from Japan, leading indicator dropped to 105.7 in May.

IMF chief Lagarde hinted that there would be a cut in the global growth forecast. She noted that “the global economy is gathering speed, though the pace may be a bit less than we previously predicted because the growth potential is lower and investment remains lackluster”. She urged to “reinforce supply capacity” to strengthen the recovery as effect of central bank’s effort to sustain demand is limited. Nonetheless, she expected US to have “a significant rebound.

Looking ahead, a key event is the release of the FOMC minutes on Wednesday, together with several Fed presidents speaking. While Richmond Fed’s Jeffrey Lacker and Minneapolis Fed’s Narayana Kocherlakota will be speaking on Tuesday, Kansas City Fed’s Esther George will talk on Thursday, followed by Atlanta Fed’s Dennis Lockhart and Chicago Fed’s Charles Evans on Friday. The BoE meeting will be due Thursday but there will likely be no change in policy. Further details about BoE’s decision would not be out until release of the MPC minutes on July 23.

Here are some highlights of the week:

  • Tuesday: Australia NAB business confidence; German trade balance; Swiss CPI, retail sales; UK manufacturing and industrial production;
  • Wednesday: China CPI and PPI; Canada housing starts; FOMC minutes
  • Thursday: Australia employment; China trade balance; BoE rate decision; US jobless claims
  • Friday: Australian home loans; Canada employment

Daily Pivots: (S1) 0.8931; (P) 0.8941; (R1) 0.8951; More….

USD/CHF lost some momentum and retreats mildly today. But intraday bias stays on the upside for the moment. The pull back from 0.9036 has completed at 0.8855 already. Break of 0.9036 will extend the larger rise to 0.9156 key resistance next. Meanwhile, below 0.8855 will revive the original bearish case and turn bias back to the downside for 0.8702 low instead.

In the bigger picture, price actions from 0.9971 are still viewed as a correction pattern. Decline from 0.9838 is seen as the third leg. As long as 0.9156 resistance holds, deeper fall would still be seen to 50% retracement of 0.7065 to 0.9971 at 0.8518 and below. We’d start to look for reversal signal below 0.8518 again. Meanwhile, note that medium term downside momentum has been diminishing as seen in weekly MACD. Break of 0.9156 will argue that such correction pattern is completed and will turn outlook bullish for a test on 0.9971.

USD/CHF 4 Hours Chart

USD/CHF Daily Chart

Leading Index May P

Unemployment Rate Jun

German Industrial Production M/M May

Foreign Currency Reserves Jun

Eurozone Sentix Investor Confidence Jul

Building Permits M/M May

Ivey PMI Jun


BoC Business Outlook Survey

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