Markets have turned their attention from the periphery to central Europe as France posted a slower than expected GDP in Q2. The negative data has the euro slightly higher versus the dollar but down in most of the crosses. The lone exception is the Swiss franc which continues to strengthen as traders unwind long CHF positions.
The EUR is up a touch on the dollar after trading as low as 1.4150 earlier this morning following 0% growth from France in Q2. Economists were expecting French GDP to come in near 0.3%. The weak data comes at an inconvenient time as fixed income traders have begun to take a second look if France is worthy of its AAA credit rating. While the rating agencies affirmed France's rating earlier this week the pressure earlier did arouse a response from President Sarkozy in an attempt to convince markets that France was serious about getting its budget deficits in-line. The WSJ reported German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet next Tuesday to plan how to solidify European governance and voice their opposition to Eurobonds. The two will also focus on aligning fiscal and budget policies across the EU.
While the euro is lower versus the JPY and the GBP it is stronger versus a tumbling Swiss franc as the CHF has fallen for the second day following a potential peg to the EUR. The EUR/CHF has a 61% retracement target at near 1.1200 from the July 22nd high to the low this month.
The EUR/USD continues to range trade between 1.4400 and 1.4150. The pair is currently being supported by gains in European equities with most major European bourses up by almost 1.5%. The EUR/USD could seek some buying action should US equities trade higher. Equity markets have been trading under extreme levels of volatility this week and FX traders should be taking their cues from the US equity markets' reaction to this afternoon's US retail sales and consumer confidence survey.
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