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At 2:45:00 AM E-12 France July Consumer Confidence (exp -13.9, prev 13) At 3:45:00 AM E-12 Italy July PMI (exp 50.8, prev 51.1) At 3:50:00 AM E-12 France July PMI (exp 53.2, prev 53.9) At 3:55:00 AM E-12 Germany July PMI (exp 49.7, prev 50.2) At 4:00:00 AM E-12 Euroarea July PMI (epx 51.3, prev 51.8) At 4:30:00 AM UK July PMI (exp 50.7, prev 50.5) At 6:00:00 AM E-12 Euroarea May Retail Sales (exp 1.2%, prev 0.1%) At 7:00:00 AM UK BoE Meeting (exp n/c, prev 4.0%) At 7:45:00 AM E-12 ECB Meeting (exp n/c, prev 3.25%)
The dollar entered a consolidation period against the European majors and yen in Japanese trade and a break to the upside is favored given the markets non-reaction to worse than expected economic data from the US overnight. The euro's correction from a high of 1.02 has formed a double bottomed at 97.65 and failure here would likely result in a new wave of selling. Likewise, USD/JPY is showing a bullish triangle formation that could break higher to target key resistance around 120.75/80.
Today's economic calendar from Europe should continue to disappoint the market and given the recent shift in sentiment away from near exclusive dollar selling the greenback could add to gains once the consolidation period ends. Overnight, traders pushed the euro sharply lower after a surprise 2.2% fall in German retail sales in June. Today, French consumer confidence, Italian and German PMI as well as E12 PMI are all expected to fall in July. Only E12 retail sales from two months back is forecasted to rise.
Also of interest to markets today will be the ECB and BoE monetary policy meetings, although no change in rates are expected. Wednesday's disappointing US Q2 GDP rose by a mere 1.1% vs the revised 5.0% in Q1. Slower growth in the US points to a slowdown in the global economic recovery, as can be seen in recent Eurozone, UK and Japanese data. In addition, last year's US GDP data was revised downward to show three consecutive quarters of contraction, confirming the U.S. economy did indeed suffer a recession in 2001. Also weighing on the Eurozone is an OECD report warning that the region's outlook has become gloomier since April, pointing out the strengthening euro as the major culprit. Therefore, any comments from central bank officials on the economy, inflation or markets in general will be closely watched for signs of direction on rates, and could easily influence the FX market. Key US data today will be ISM index of manufacturing activity which is expected to fall to 55.6 from 56.2, but could show a much larger contraction if in line with recent disappoints.
EUR/USD fell from a session high of 98.00 to a low of 97.65, forming a double bottom with the same low reached on Monday. Technically, a break lower is anticipated given that the Tuesday's rally fizzled out at a high of 98.90 and then failed to overcome key support/resistance at 98.50 overnight. A break back below the 97.65 low would target key support at 97.10. That level should be tough to break, and below that, key support at 95.80, the 38% retracement of the entire rally from 85.65 to 1.02, should stave off any further euro losses in the near term.
Japanese exporter sales again pushed USD/JPY to a session low of 119.50 after reaching the mid 120s in Tokyo trade. A triangle formation has developed and traders are likely to react to either side on a break above 120.20 or below 119.50. An upside resolution would target the 3-week high of 120.40. But strong selling and rumored option barriers at 120.50 as well as key resistance at 120.75/80 could contain the upside. Moreover, the dollar's strong 4-yen rise over the past week could encourage profit taking on a break of 119.50, initially targeting 119.20, the 62% retracement of 118.45-120.40. A break below 119.20 opens the downside targeting 118.50 ahead of 117.90, with a move below 117.50 putting bigger lows back at risk.
The BoE is expected to leave interest rates unchanged for the ninth month. The bank had been expected to raise rates during the second half of the year to cool down the housing market, which is up 21% y/y in July. But with the uncertainties in equity markets and lackluster economic data, economists are forecasting the Bank of England will leave their monetary policy unchanged at 4%.
GBP/USD continues its two-week consolidation and has formed a noticeable base at 1.5560. Traders are likely to sell on a break of this level targeting 1.55 and 1.5410, the 50% and 62% retracements of the 1.5140 to 1.5860 rally. Recall, cable formed a double top at 1.5860 which led to the most recent decline. Now, holding above 1.5560 is imperative to stave off further losses.