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The Euro saw support leading up to the German IFO reading and a brief spike following the release, but has since come under pressure. The business sentiment reading rose for a fifth straight month to 90.5 from 87.3, beating forecasts of 89.0. The expectations component soared to 95.0 from 90.4, with the current outlook showing an improvement to 86.1 from 84.4.
Talking Points• Japanese Yen: Finding Support As Risk Appetite Wanes• Pound: Continues To Trade Lower on Growth Concerns• Euro: German IFO Rises For Fifth Month• US Dollar: Durable Goods, New Home Sales on TapEuro Fails To Hold Onto Gains From Fifth Straight Rise in German IFO, U.S. Durable Goods Ahead The Euro saw support leading up to the German IFO reading and a brief spike following the release, but has since come under pressure. The business sentiment reading rose for a fifth straight month to 90.5 from 87.3, beating forecasts of 89.0. The expectations component soared to 95.0 from 90.4, with the current outlook showing an improvement to 86.1 from 84.4. The sentiment reading is a strong leading indicator for GDP and the consistent improvement provides hope that the 0.3% growth in the second quarter is sustainable. Despite the bullish results, markets remain concerned as ECB officials have started to downplay the data and warn of potential pitfalls for future growth. The prevailing concern is that consumers will not readily return to their prior spending habits and that banks will be reluctant to lend. Indeed, we saw committee member Mersch express those concerns yesterday which added to the warning of a “bumpy recovery” from President Trichet on Monday. Nevertheless, the level of risk appetite continues to follow the improving fundamentals and if the outlook continues to brighten then it should remain a supportive factor for the Euro. The British pound continues to remain under pressure and be more reflective of the existing downside risks to economic growth. The BoE has been far more aggressive in its stance as it has continued to add to its asset purchase program. The MPC is concerned that banks trying to rebuild their balance sheets will hoard cash and continue to tighten lending standards. The GBPUSD is forming a clear head & shoulders formation and a break below the neckline at 1.6300 could lead to an extended move lower. Potential support is at 1.600 but beyond that there is The U.S. dollar is finding a bid tone overnight as we are seeing investors become concerned with the scope of a global recovery and the arguments for a double dip recession growing louder. However, we must keep in mind the bullish reaction following the consumer confidence reading yesterday and watch to see if the greenback is beginning to trade on fundamentals. Today will give us a clue as both Durable goods orders and new home sales are expected to have shown improvement in July. The purchase of long lasting items is forecasted to have risen by 3.0% following a unexpected drop of 2.5% the month prior. Meanwhile, purchases of new construction are expected to continue its improvement by 1.6% adding to the 11.0% gain in June. However, the broader theme of risk aversion may continue to drive bullish dollar sentiment throughout the day.