Euro Firmer as Market Eyes US Retail Sales

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Market Drivers for August 14th, 2012
GE and FR GDP beat providing minor boost to start of trade in EURUSD
EZ GDP in line ZEW shows investor sentiment deteriorating
Nikkei up 0.5% Europe up 0.57%
Oil at $93/bbl
Gold $1616/oz.

Europe and Asia:
AUD NAB Business Confidence 4 vs. -3
JPY BOJ Releases July Minutes more action may be due
EUR German GDP 0.3% vs. 0.2%
EUR Eurozone GDP -0.2% vs. -0.2%
EUR German ZEW Survey -25.5 vs. -19.4
EUR Eurozone Industrial Production -0.6% vs. -0.5%
GBP CPI 2.6% vs. 2.3%
GBP RICS House Price Balance -24% vs. -23%

North America:
USD PPI 8:30
USD Advance Retail Sales 8:30
USD Business Inventories 10:00

Euro received a small boost from better German and French GDP data in early European trade today, but the rally fizzled by mid-morning European dealing as the overall EZ GDP reading contracted in Q2 and ZEW survey showed that investor sentiment in the region continues to deteriorate. Both German and French GDP data for Q2 printed better than expected contributing to a more constructive tone for. German GDP rose 0.3% versus 0.2% eyed while French data rose 0.3% versus forecasts of 0.2%.

In France inventories added 0.3% to the final figures while domestic demand contributed 0.1% to the overall reading. Unsurprisingly private consumption declined by -0.2% while fixed capital investment increased markedly by 0.6% on a q/q basis from a decline of -0.8% the quarter prior. In Germany the seasonally unadjusted figures were actually lower at 0.5% versus 0.9% eyed but the weighted day average numbers came in essentially in line at 1.0% versus 1.1%.

The news provided a early lift to equities and risk appetite as it showed that growth in Europe’s two core economies slowed, but did not contract despite the ongoing turmoil in the region’s sovereign debt markets. However the rally hit a wall after the release of the broader EZ GDP data which printed at -0.2% as expected. The fact that the EZ GDP contracted despite better than expected numbers out of Germany and France only highlights the difficulties facing the region’s peripheral economies which are mired in a deep recession with no respite in sight.

That dynamic was echoed by weaker than forecast ZEW data which printed at -25.5 versus -19.6 eyed as investor sentiment deteriorated further on fears that the EZ debt crisis will see no resolution anytime soon. Still risk appetite remained resilient with Greece auctioning off 3 month T-bills in greater volume than expected although the yield rose to 4.43% from 4.28% a month earlier.

It looks as though risk appetite will live or die today by the results of the US Retail Sales data due at 12:30 GMT at the start of North American session. Market expectations are for a rebound to 0.4% after three consecutive months of contraction and should the data meet or beat forecast it will likely help to push all risk assets higher. The EURUSD has failed to clear the 1.2400 level more than a few times over the past several weeks, but if today’s US economic data shows promise it may make another run at the figure as the day proceeds.

Boris Schlossberg
Managing Director

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