Euro Shakes Off Earlier Weakness As German Business Confidence And Industrial New Orders Rise

Euro Shakes Off Earlier Weakness As German Business Confidence And Industrial New Orders Rise

The Euro continues to trade higher following a 15 month high in German business confidence with the EUR/USD now looking to re-test 1.5000. The German IFO survey rose to 93.9 from 91.9 with both the current assessment and expectation component seeing improvement.

Talking Points

• Japanese Yen: Found Support On China’s Lending Concerns
• Pound: Mortgage Approvals Rise to Highest Since January, 2008
• Euro: German Business Confidence, and Improving Demand Offset Earlier Losses
• US Dollar: U.S. GDP , FOMC Minutes on Tap

Euro Shakes Off Earlier Weakness As German Business Confidence And Industrial New Orders Rise


he Euro continues to trade higher following a 15 month high in German business confidence with the EUR/USD now looking to re-test 1.5000. The German IFO survey rose to 93.9 from 91.9 with both the current assessment and expectation component seeing improvement. The final reading for German GDP helped end the single currency’s slide during Asian trading as it confirmed Europe’s largest economy grew by 0.7% in the third quarter. An unexpected jump in domestic demand from -1.4% to 1.3% helped raise the outlook for future growth. Meanwhile, a 1.5% increase in industrial new orders added to the bullish story as it advanced for a sixth straight month beating estimates of 1.0%.

Strong demand from home and abroad is the recipe to get the economic region back on track and the improving fundamental picture should start to fuel interest rate expectations. The 3.7% and 1.5% in capital and durable goods respectively demonstrates the growing optimism as investment is being made in items to help increase future output. However, it will take consistent advances to convince policy makers that downside risks have alleviated and until inflationary pressures re-emerge the ECB will most likely remain on hold. Therefore, we may see the EUR/USD continue to trade in its current range of 1.4800-1.5000 which could set the pair up for a retrace latter today. We have seen the current pattern of dollar weakness during European trading followed by a reversal in the U.S. session which could be the case today.

The British pound has seen similar price action to the Euro as the risk trade continues to dominate price action. Fundamentally the news from the U.K. continues to improve with mortgage approvals in October rising to the highest level since January, 2008. New loans edged higher to 42,238 from 42,073 the month prior as banks have started to loosen their lending standards. However, we continue to see small businesses and consumers finding it difficult to obtain funds for other ventures, which is why the BoE has left the door open for future quantitative easing. However, as the odds of more asset purchases diminishes we have started to see the sterling find support and today’s bounce from 1.6500 increases upside potential.

The U.S. dollar is giving back earlier gains as risk adverse sentiment seen during Asian trading has started to wane. Chinese banks submitting their capital raising plans to regulators after depleting reserves on the back of unabashed lending has raised concerns that the Asian giant may be on the verge of creating its own asset bubbles. The risk trade is finding a hard go of it today as China is expected to be the engine that drives the global recovery, and chinks in its armor will cast doubts on a broader recovery. The second reading of U.S. GDP figures and the expected downward revision to 2.8% from 3.5% could weigh on optimism and reignite growth concerns. However, the release of the FOMC minutes will take center stage today and a dovish stanch from policy makers could lead to support for equities and more dollar weakness. S&P Case Schiller housing figures, consumer confidence and Richmond Fed are also on tap and offer event risk.