Market Drivers for July 25, 2013
IFO comes in line with Expectations a but soft triggering sell off in EUR/USD
Cable drops after GDP prints in line as 5300 gives way.
Nikkei -1.14% Europe -1.05%
Oil $104/bbl
Gold $1310/oz.

Europe and Asia:
JPY Japan Buying Foreign Bonds 549.3B vs. 1105.0B
EUR German IFO – Business Climate 106.2 vs. 106.1
EUR German IFO – Current Assessment 110.1 vs. 109.7
EUR German IFO – Expectations 102.4 vs. 102.5
GBP GDP 0.6% vs. 0.6%

North America:
USD Initial Jobless Claims 8:30
USD Durable Goods Orders 8:30

Both euro and cable were lower in morning European trade after economic data from the region simply matched investor expectations, spurring a profit taking selloff that send EUR/USD below the 1.3200 level and GBP/USD below 1.5300.

In Germany the IFO survey increased to 106.2 from the 105.9 the month prior but the expectations component came in a little bit weaker at 102.4 versus 102.5 expected. Given the sharp improvement in yesterday’s PMI readings the market was primed for a bigger upside surprise and failing to obtain it, traders sold the EUR/USD on the news pushing it to a low of 1.3165 before finding support.

As similar dynamic dominated trade in the GBP/USD which tumbled through the 1.5300 level to hit a low of 1.5263 before finally stabilizing. UK GDP printed at 0.6% – just in line with expectations – but currency traders were clearly looking for more given the recent string of upside economic surprises.

UK GDP showed improvement across nearly all categories with services output rising up 0.6% and manufacturing output increasing 0.6% versus 0.5% and 0.3% the quarter prior. The only noticeable decline was in government and other services which dropped to 0.1% versus 0.4% in Q1.

The overall economic picture shows clear pick up in economic activity that is likely to persist for the foreseeable future. Cable however may have gotten a little ahead of itself as it raced towards the 1.5400 level over the past several days and today’s correction is a sign that the pair may need to consolidate its rally and could decline towards 1.5200 as the day progresses if dollar continues to be bid.

In North America today the calendar only carries weekly jobless claims and the Durable Goods orders. The market anticipates a flat month on month reading in the core component and unless it deviates widely from expectation the data is unlikely to have much impact on trade. Rather, the price action today may be driven by risk appetite flows and if equity prices begin to correct euro and cable could see fresh lows as the day proceeds.

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