Market Drivers for July 17 2014

Kiwi returns to lows

EZ CPI in line

Nikkei -0.06% Europe -0.48%

Oil $102/bbl

Gold $1304/oz.

Europe and Asia:

AU NAB Business Confidence 0.2% vs. -0.2%

EUR CPI 0.5% vs.0.5%

North America:

USD Building Permits 8:30

USD Unemployment Benefits 8:30

USD Housing Starts 8:s0

USD Philly Fed 10:00

It’s been an exceedingly quiet night of trade in the currency market with most majors remaining in very narrow 20 pip ranges as summer doldrums and lack of any meaningful economic data have created a state of paralysis in FX. In Asian session trade the kiwi returned to its weekly lows dropping below the 8700 figure as concerns over economic growth and tepid inflation numbers have put any additional rate hikes from RBNZ in doubt.

Echoing that market sentiment ANZ consumer confidence for July rose just barely by 0.6% to 132.7 indicating that demand may be peaking. As we note yesterday the kiwi appears to have made a double top at the 8800 level and may now drift lower to 8600 over the next several days as profit taking continues.

In Europe the price action was slow as well with cable drifting lower throughout the night as it once again failed to breach the 1.7150 level. Yesterday’s very weak wage growth numbers have really dented the bullish sentiment in the pair, as they showed that inflation pressures are non existent allowing the Bank of England to maintain its highly accomodative policy for longer that the market anticipated.

Given the lack of price pressures, the MPC is likely to maintain its dovish bias as Mr. Carney and company are clearly fearful that any tightening may snuff out or slow down the UK economic recovery. Cable has struggled to take out the 1.7150 figure for more than a week and if it fails to do so today it may provoke a deeper correction as late longs chose to bail out of the trade.

Meanwhile the euro remains weak on a relative basis having broken below the 1.3550 support. The pair may be under some pressure today after President Obama announced a further round of sanctions against Russia that could hurt financing for some of Russia’s biggest companies. The chilling of diplomatic relations between Russian and the West is likely to translate into reduced economic activity in the region and could hurt growth in the Eurozone – especially Germany.

Already the market has seen a series of disappointing economic reports out of Germany this month that suggest H2 growth may be a bit weaker than expected. Still, EUR/USD has not show any signs of panic selling with the pair finding support ahead of the 1.3500 level. Today’s data showed that CPI in the region rose 0.5% as expected – an anemic but nevertheless stable rate that suggests that disinflation forces may have stabilized.

With little meaningful data on the calendar, trading may remain moribund for rest of the day, but the market will look at US housing and Philly Fed data. If the Philly Fed confirms this week’s strong Empire numbers then the buck could get a small lift, as US data continues to surprise to the upside and could finally start to exert some upward pressure on rates. A strong report could spur some action and test the 1.3500 barrier in EUR/USD as the day proceeds.

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