Market Drivers July 16th, 2012
Risk gives up gains as EU session proceeds
EU Trade balance better at 6.9B vs. 5.6 eyed
Nikkei up 0.05% Europe down -0.12%
Oil at $87/bbl
Gold $1586/oz.

Europe and Asia:
GBP Rightmove -1.7% vs. 1.0%
EUR Eurozone CPI 2.4% in line
EUR Eurozone Trade Balance 6.9B

North America:
USD Advance Retail 8:30
USD Empire Manufacturing 8:30
USD Business Inventories 10:00

It’s been a quiet Monday morning session in FX as risk currencies grounded lower for most of early European dealing after a gap open in Asia failed to produce any continuity. The euro drifted back towards the 1.2200 level after spiking to a high on 1.2267 on Australia and Aussie receded to 1.0215 after hitting 1.0250 at the start of Australian session.

Risk currencies initially rose on a bit of enthusiasm from the strong Friday close in US, but the rally quickly ran out of steam in Europe with sales in EUR/JPY in particular weighing on the EUR/USD as the former pair tested its recent lows near 96.50. On the economic front the calendar was generally quiet with only UK Rightmove housing, EU CPI and EU trade balance data on the docket.

In UK Rightmove prices declined by -1.7% versus a gain of 1.0% the month prior. This was the sharpest fall in UK house asking prices in four years suggesting that the recovery in real estate sector is clearly running into a headwind. Although analysts pointed out that seasonal factors such as the coming of the Olympics and the horrid weather in June may have contributed to the decline. Cable weakened throughout the night sliding back towards the 1.5500 level as the London session progressed.

In Europe, the better EU trade data which printed at 6.9 Billion versus 5.7 Billion eyed offered no solace to euro bulls as the currency dropped below the 1.2200 level once again setting fresh record lows against the Aussie as EUR/AUD cross hit 1.1933. The pair has been particularly weak on the crosses as capital continues to flow out of the EZ on fears of further stress to the system. As we noted earlier today the nagging irresolution of the ESM issue which now looks to be tied up in German constitutional court at least until September 12th is weighing on the unit and adding to the downside pressure.

In North America today the focus turns to US Retail Sales and Empire manufacturing data. Markets anticipate a slight increase in both which could stabilize the equity markets and provide some mild support for high beta FX, but may also in a perverse way could create a further selloff if markets interpret the news as negative for any additional QE from the Fed. Overall risk sentiment remains highly negative and if US equities see no bid in early North American trade, EURUSD could test the key 1.2150 level setting fresh yearly lows as liquidation of euro longs continues.

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