Euro Falls after Sharp Fall in Economic Sentiment, Accelerating Lower

Market overviews

Euro falls broadly today after data showed surprised sharp fall in Germany and Eurozone economic sentiment. But at this point, Swiss Franc is even worse, while Yen is not far behind. On the other hand, Sterling and commodity currencies are trading generally higher, which much help from crosses. Dollar is also firm but await more comments from Fed officials for the next move.

Technically, EUR/USD finally accelerates down away from 1.1751 support. A major focus is whether it would drop through 1.1602/1703 support zone without hesitation, or it would draw support from there to set up a rebound. Meanwhile, EUR/GBP is also trying to get ride of 0.8470 support decisively. Sustained trading below would bring downside acceleration towards 0.8276 long term support. That could drag down Euro elsewhere too.

In Europe, at the time of writing, FTSE is down -0.09%. DAX is up 0.14%. CAC is up 0.02%. Germany 10-year yield is down -0.0107 at -0.468. Earlier in Asia, Nikkei rose 0.24%. Hong Kong HSI rose 1.23%. China Shanghai SSE rose 1.01%. Singapore Strait Times rose 0.95%. Japan 10-year JGB yield rose 0.0101 to 0.025.

German ZEW dropped sharply to 40.4, increasing risks for the economy

Germany ZEW Economic Sentiment dropped sharply from 63.3 to 40.4 in August, well below expectation of 57.0. Germany Current Situation rose from 21.9 to 29.3, below expectation of 30.0. Eurozone ZEW Economic Sentiment dropped sharply from 61.2 to 42.7, well below expectation of 72.0. Eurozone Current Situation rose 8.6 pts to 14.6.

“Expectations have declined for the third time in a row. This points to increasing risks for the German economy, such as from a possible fourth COVID-19 wave starting in autumn or a slowdown in growth in China. The clear improvement in the assessment of the economic situation, which has been ongoing for months, shows that expectations are also weakening due to the higher growth already achieved,” comments ZEW President Professor Achim Wambach on current expectations.

Australia NAB business confidence dropped to -8, conditions dropped to 11

Australia NAB business confidence dropped sharply from 11 to -8 in July. Business conditions dropped form 25 to 11. Looking at some details, trading conditions dropped form 32 to 12. Profitability conditions dropped from 25 to 6. Employment conditions dropped from 18 to 10.

NAB said: “The continuing lockdown in NSW and the briefer periods of disruption across a number of other states saw a further deterioration in activity in the business sector in July… Confidence took a big hit in the month with optimism collapsing on the back of ongoing restrictions.”

“It is now widely expected that we will see a negative print for GDP in Q3. However, we know that once restrictions are removed that the economy has tended to rebound relatively quickly. We will continue to track the survey very closely for an indication of just how quickly that happens – particularly forward orders and capacity utilisation as we assess how the disruption has fed into expansion plans as conditions bounce back”.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1724; (P) 1.1747; (R1) 1.1758; More…

EUR/USD’s decline extends to as low as 1.1715 so far today, and intraday bias remains on the downside. We’d look for strong support from 1.1602/1703 support zone to bring rebound. But break of 1.1907 resistance is needed to confirm short term bottoming. Otherwise, further fall is in favor even in case of recovery. Meanwhile, sustained break of 1.1602 will argue that it’s already reversing the trend from 1.1603, and target 61.8% retracement of 1.1603 to 1.2348 at 1.1289.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP BRC Like-For-Like Retail Sales Y/Y Jul 4.70% 7.20% 6.70%
01:30 AUD NAB Business Confidence Jul -8 11
01:30 AUD NAB Business Conditions Jul 11 24
05:00 JPY Eco Watchers Survey: Current Jul 48.4 42.9 47.6
09:00 EUR Germany ZEW Economic Sentiment Aug 40.4 57 63.3
09:00 EUR Germany ZEW Current Situation Aug 29.3 30 21.9
09:00 EUR Eurozone ZEW Economic Sentiment Aug 42.7 72 61.2
10:00 USD NFIB Business Optimism Index Jul 99.7 102.3 102.5
12:30 USD Nonfarm Productivity Q2 P 2.30% 3.60% 5.40% 4.30%
12:30 USD Unit Labor Costs Q2 P 1.00% 1.20% 1.70%