After yesterday’s fairly explosive reaction to the EU summit, the market is having a look around and deciding if there is any exclamation point to add here to close the week. Perhaps only a US budget deal today could provide one. If you haven’t had a chance, have a look at our recently published July FX monthly. Things appear suddenly sedate after yesterday’s sharp move in risk appetite and the Euro and pro-risk currencies higher while the USD tanked anew and through key technical lines in the sand as we outlined in yesterday’s video. Now, the market is mulling whether there is enough to go on for a further rally – Euribor futures are backing up (makes perfect sense considering the weak EuroZone data of late, though expectations could theoretically shift towards more economic optimism if this deal is considered likely to boost the economy – not at all a view we share) gold and silver are back in rally mode, treasuries are looking higher both in Germany and the US (handy lately as a tip off on the direction of risk appetite) and equities have dipped a bit before the US open. Spanish 2-year yields are back a few bps higher than they closed yesterday after running a bit lower yesterday. It’s also worth noting that EURCHF has already backed off over 150 pips from its highs on the day. Still, for the shortest term, this could merely be the ebb and flow of the market and its wave-like progression and we would need to see a full unwind of yesterday’s move in the coming couple of trading days to believe that there won’t be a further tack-on rally in risk, the Euro, etc. Further out – and perhaps not so far as it is tough to see how the meat of this deal is sufficient cause for sustainable hope – the market may want to give this new bailout deal more time to develop. Debt ceiling deal The ongoing US debt deal circus has a plot so complicated and the rumors are so conflicting that we almost won’t b other covering it, except to say that the likelihood of deal being announced today is rather high – at minimum a deal that establishes a floor with the potential for additional legislation in coming months, if not a larger deal up front that may be hashed out between Obama and Boehner as heavily rumored. It would certainly be interesting to test the markets resolve in bidding up EURUSD here with a US budget deal. Tactically speaking, the area between 1.4335 (daily pivot) and a bit below 1.4300 looks interesting, as the area above the 1.4290 represents the territory taken back by the bulls yesterday above the previous highs. Odds and ends The German IFO survey for July showed the sharpest decline in the overall level since late 2008, though the absolute level is still quite high. The cause of the drop was finally mostly attributable to the Current Assessment category, meaning that the surveyed are seeing less strength in their current environment rather than simply fearing future developments. The latest evidence points distinctly toward a slowdown in the Germany economic machine, an ironic backdrop to all of the celebration going on concerning the latest celebration of the EU summit results.\ Canada posted absurdly low CPI numbers for the month of June, so low that we have to wonder whether there is the risk of mean reversion next month. That appears to be the case for the core data, which registered a significant dip – but only after an equally significant bump for May. The official Canadian inflation series is relatively volatile, but the data today nonetheless took some of the stuffing out of forward expectations for the BoC, and in the crosses, CAD is suffering a bit as it has tended to whenever the USD is exceptionally weak. A strong retail sales result for May (yawn – old data) threw the loonie a bone a bit later this morning. Interesting that USDCAD is having second thoughts today after breaking to a multi-year low yesterday. Looking ahead It’s quiet for the rest of the day today, save for the potential for Washington to surprise us with a deficit/debt ceiling deal. We will have full coverage of next week’s economic calendar risks towards the end of the US trading day, as well as a look at how the week closes – but below a few calendar highlights for Monday and Tuesday: On Monday, we’ve got another UK housing survey, an Australia PPI data point for Q2, the RBA’s Edey out speaking, the US Chicago Fed National Activity Index (stable or falling further?), and US Dallas Fed Manufacturing Survey. On Tuesday, watch out for the NZ Trade Balance, RBA’s Stevens out speaking, Sweden’s PPI (after a very weak May number), and first look at UK’s Q2 GDP (expected barely positive on QoQ basis). The US Consumer Confidence survey, Richmond Fed, and US New Home Sales are also up Tuesday. Stay careful out there and have a wonderful weekend. Economic Data Highlights
- China Jul. Flash Business Sentiment Survey out at 58.02 vs. 57.76 in Jun.
- Germany Jul. IFO Business out at 112.9 vs. 113.7 expected and 114.5 in Jun.
- EuroZone May Industrial Orders out at +3.6% MoM an +15.5% YoY vs. +0.8%/+10.1% expected, respectively and vs. +10.3% YoY in Apr.
- Canada Jun. Consumer Price Index out at -0.7% MoM and +3.1% YoY vs. -0.2%/+3.6% expected, respectively and vs. +3.7% in May
- Canada Jun. CPI Core out at -0.6% MoM and +1.3% YoY vs. 0.0%/+1.9% expected, respectively and vs. +1.8% YoY in May
- Canada May Retail Sales out at +0.1% MoM and less Autos at +0.5% MoM vs. -0.3%/+0.3% expected, respectively.
Upcoming Economic Calendar Highlights (all times GMT)
- UK Jul. Hometrack Housing Survey (Sun 2301)
- Australia Q2 Price Index (Mon 0130)
- Australia RBA’s Edey to Speak (Mon 0430)
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