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Euro Tumbles Towards 1.3800

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Top Stories

  • Chinese data shows soft landing
  • UK PPI cooler than forecast
  • Nikkei off -.55% Europe lower by -1.64%
  • Oil at $88.50/bbl
  • Gold at $1885/oz.

Overnight Eco

  • EUR German Consumer Price Index (MoM) (AUG F) 0.0%
  • GBP Producer Price Index Input n.s.a. (MoM) (AUG) -1.9% vs -1.5%
  • GBP Producer Price Index Input n.s.a. (YoY) (AUG) 16.2% vs. 16.8%
  • GBP Producer Price Index Output n.s.a. (MoM) (AUG) 0.1%
  • GBP Producer Price Index Output n.s.a. (YoY) (AUG) 6.1%

Event Risk on Tap

  • CAD Unemployment Rate (AUG)
  • CAD Net Change in Employment (AUG)
  • CAD Housing Starts (AUG)

Price Action

  • USD/JPY quiet near 77.50
  • AUD/USD pressured to 1.0600 on risk sell off but holds
  • GBP/USD PPI data has little impact as pair range 1.5950-1.5990
  • EUR/USD stops tripped at 1.3850 but rebounds for now

Risk FX drifted lower in early morning European trade driven by a selloff in equities and further evidence of slowdown in China. EUR/USD was the weakest major of the night as shorts tried to probe the 1.3800 level in the wake of yesterday's ECB press conference by Jean Claude Trichet in which the central bank chief struck a decidedly more neutral tone on monetary policy.

The economic calendar was relatively barren tonight with data from China the main focus of the market. Chinese economic data printed slightly below expectations suggesting that the country's economy may be in the midst of a soft landing as dampened global demand and a restrictive monetary policy are beginning to have an impact on business activity. Chinese Industrial output eased to 13.5% versus 13.7% projected while fixed assets investment was a bit softer at 25% vs. 25.2%. Chinese Retail Sales were largely in line at 17% versus 16.9% while CPI cooled just a tad to 6.2% from 6.3% eyed.

Overall the news of out China indicated that activity has certainly slowed from the torrid levels of 2010 when Industrial Production routinely expanded at 17% per month or more, but nevertheless remains well above double digit levels showing little evidence of significant deterioration. China continues to outperform the rest of the G-3 and continues to drive growth in Asia in contrast to the very tepid conditions in EZ and North America.

In UK the PPI input data printed slightly cooler than expected at -1.9% versus -1.5% eyed, but the output PPI was in line with expectations at 0.1% versus 0.1% projected. The price levels are finally moving in the right direction for the BOE as lower oil prices and VAT effects begin to exert a positive impact on price levels, but the adjustment is relatively slow and cable saw little reaction to the news trading in a very narrow 1.5950-1.5980 band for most of the night.

In North America today the focus will turn towards Canada where the latest employment data is expected to show a 24K rise. However, given the recent softness of Canadian data and the relatively cautious comments from the BOC the chances of a downside miss are relatively strong. USD/CAD has remained below parity for most of this year. However if the data shows contraction in the labor force the pair could make a challenge towards that level as traders begin to price in the possibility of a rollback of rates from the BOC.

FX Upcoming

Currency GMT EST Release Expected Prior
CAD 11:00 7:00 Unemployment Rate (AUG) 7.2%
CAD 11:00 7:00 Net Change in Employment (AUG) 7.1K
CAD 12:15 8:15 Housing Starts (AUG) 205K

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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