Mid-Day Report: Euro Tumbled as German ZEW Nose-dived

Euro weakens broadly today after disappointment from German confidence data. The German ZEW economic sentiment deteriorated sharply from 27.1 to 8.6 in August, far below expectation of 18.2. That’s also the lowest reading since December 2012. The current situation gauge also dropped sharply from 61.8 to 44.3, missing expectation of 55.5. ZEW said in the statement that “the decline in economic sentiment is likely connected to the ongoing geopolitical tensions that have affected the German economy by now.” And, “the signs are that economic growth in Germany will be weaker in 2014 than expected.” Eurozone ZEW economic sentiment also tumbled fro 48.1 to 23.7 versus consensus of 41.3.

Technically, nonetheless, EUR/USD is still holding above last week’s low of 1.3332. EUR/GBP, EUR/AUD, and EUR/CAD dipped today too but are all holding above near term support levels. We’re still favoring further rebound in these three crosses ahead and their prior bearish trend could be reversing. But the common would be facing tougher tests from Q2 GDP release from France, Germany and Eurozone on Thursday.

Elsewhere, Australia’s NAB business confidence improved 3 points to 11 in July. According to NAB, “a solid jump in business conditions and better forward orders is supporting the relatively optimistic position”. Moreover, while “Stronger sales and profits are driving the trend, but the recovery continues to be relatively jobless with the employment index seeing more moderate gains (remaining at subdued levels)”. Housing price index rose 1.8% qoq in 2Q14, compared with market expectations of a 1.1% gain and a downwardly revised 1.5% increase in the prior quarter. UK BRC retail sales monitor dropped -0.3% yoy in July. Japan industrial production dropped -3.4% mom in June.

Daily Pivots: (S1) 1.3372; (P) 1.3392 (R1) 1.3403; More….

EUR/USD dips sharply today but stays above 1.3332 temporary low so far. Intraday bias remains neutral first. With 1.3444 resistance intact, deeper fall would still be seen to 100% projection of 1.3993 to 1.3502 from 1.3700 at 1.3209. But in that case, strong support should be seen there to bring rebound. Meanwhile, above 1.3444 will confirm short term bottoming and turn bias back to the upside for 1.3502 support turned resistance.

In the bigger picture, overall price actions from 1.6039 is viewed as a corrective pattern. One interpretation is that fall from 1.6039 to 1.2329 was the first leg. Price actions from 1.2329 were the second leg, in form of a triangle. In such view, the fifth leg of the triangle pattern could have completed at 1.3993 already. In other words, the decline from 1.3993 is resuming the fall from 1.16039. Medium term outlook will now stay cautiously bearish as long as 1.3700 resistance holds. Break of 1.2755 key support level will raise the chance of an eventual break of 1.1875 low.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:01
GBP
BRC Retail Sales Monitor Y/Y Jul
-0.30%

-0.80%

1:30
AUD
NAB Business Confidence Jul
11

8

1:30
AUD
House Price Index Q/Q Q2
1.80%
1.10%
1.70%
1.50%
4:30
JPY
Industrial Production M/M Jun F
-3.40%
0.50%
-3.30%

9:00
EUR
German ZEW (Economic Sentiment) Aug
8.6
18.2
27.1

9:00
EUR
German ZEW (Current Situation) Aug
44.3
55.5
61.8

9:00
EUR
Eurozone ZEW (Economic Sentiment) Aug
23.7
41.3
48.1

18:00
USD
Monthly Budget Statement Jul

-98.2B
70.5B

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