Market Drivers July 25, 2016

GE IFO Better than forecast
NZD tumbles but recovers
Nikkei 0.38% Dax 0.88%
Oil $44/bbl
Gold $1322/oz.

Europe and Asia:
EUR GE IFO 108.3 vs. 107.4

North America:
No Data

It’s been an extremely quiet night in the FX markets with most of the majors essentially treading water as the fresh week opened for business.

The G-20 meeting had zero impact on FX flows as the communique offered no fresh policy proposals and only broad general agreement to foster economic growth and discourage competitive devaluation methods.

Most of the major opened unchanged in Asia and remained that way for most of the session with exception of the kiwi which took a very sharp tumble to 6956 before finally stabilizing and slowly grinding its way towards .7000 figure. The .7000 level in NZD/USD now appears to be stiff resistance as traders are on alert for lower rates after last week warning from RBNZ that the central bank will ease policy over the next few meetings.

In Europe the news was more positive with the IFO report showing surprising resilience in the wake of the Brexit shock. In stark contrast to the ZEW survey which took a dive in the wake of Brexit vote, the IFO actually printed better than forecast coming in at 108.3 versus 107.4 eyed. Both current assessment and future expectations also improved from the months prior with only the automotive sector showing a slowdown.

According to IF0 head Fuest, the German economy remained robust despite the Brexit concerns – and that makes sense given the fact that actual trade conditions and agreements have not changed since the Brexit vote and may remain the same for quite some time.

The EUR/USD responded positively to the data creeping slowly towards the 1.1000 level which now serves as resistance for the pair. The EUR/USD has underperformed over the past few weeks as markets remain concerned about the prospect of growth and the threat of further accommodation in the region. Tonight’s IFO data was a strong counterargument to the narrative and could provide some mild support for the EUR/USD as the week begins helping to take it back above the 1.1000 figure which has now been tested 4 four times over the past few weeks.

In North America the calendar is empty, so FX markets will likely take their cues from equities and any selloff in stocks could take the euro back below the 1.1000 on EUR/JPY flows. For now however, the major pairs look to remain in tight ranges as markets prepare for much more significant event risk later in the week.

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