By FXEmpire.com
At the start of the European session yesterday the German Ifo institute downwardly revised its growth projections for Germany. The German labor market data were slightly weaker than expected, too.
At the same time, there were rumors that Germany would continue to oppose a framework that would imply a common responsibility for debt of individual member states. Markets of risky assets had started the session in a rather constructive way, but the headlines on Germany pulled the trigger for a nervous, volatile trading session. After jumping higher, core bonds settled in sideways range ahead of the start of the EU Summit. Data releases were of no consequence.
Italy managed to raise the targeted funds with their BTP auctions (they had to pay dearly however) and the US 7-yr Note auction was weak. These factors were of minor relevance though. On the currency market, the euro nosedived. EUR/USD dropped below Wednesday’s lows and settled in the lower half of the 1.24 big figure. So, the key 1.2443/36 support level was under heavy strain, but a clean break didn’t occur. Currency traders were apparently cautious to be too much short euro going into the EU summit. The moves in the EUR/GBP cross rate were much more contained as the pair hovered in a rather tide sideways range in the 0.80 area.
Today, the focus of markets will remain on the EU summit. However, the eco calendar is also well-filled with the first estimate of euro zone CPI inflation, euro zone M3, the Chicago PMI, the final figure of U. of Michigan consumer confidence and the US personal income and spending data. Germany’s Lower House will vote on the ESM and fiscal pact.
After surprising on the downside of expectations in May, euro zone CPI inflation is forecast to have stabilized in June. The first estimate is expected to show a stabilization at 2.4% Y/Y. We believe that another downward surprise is not excluded, partly due to the further decline in the oil price. Earlier released national data surprised mostly on the downside of expectations (German, Spanish and Belgian CPI), while the Italian CPI rose unexpectedly. Also the M3 money supply and credit growth data will be interesting to receive a last update on lending within the euro area. In April, euro zone M3 money supply slowed sharply, from 3.1% Y/Y to 2.5% Y/Y, while the lending data were not too bad. For May, a further slowdown in the annual rate of M3 is forecast to 2.3% Y/Y, but especially interesting are the lending data to see whether they remain rather strong, while the economic climate is cooling.
In the US, the Chicago PMI dropped sharply last month to reach its lowest level since end 2009. For June, a further albeit marginal drop is expected, from 52.7 to 52.3, but after the poor regional indicators received earlier this month, we believe that also for the Chicago PMI a downward surprise is not excluded. The final figure of University of Michigan consumer confidence for June is forecast to confirm the first estimate, which showed the first decline in 10 months. According to the first release, Michigan consumer confidence weakened from 79.3 to 74.1. Recently, there was a trend of upward revisions between the early estimate and final reading. It will be interesting to see whether this trend continues as the economic climate is worsening. Finally, US personal income and spending are forecast to come out rather soft in May. Personal income is expected to have risen by 0.2% M/M, while spending is expected to have stabilized.
Click here a current AUD/USD Chart.
Originally posted here
