ZEW may improve but this is not a buy signal for the EUR
Overnight, the USD has continued to remain bid with US yields moving higher. The weakest currencies in the Asian session have been JPY and AUD, both losing around a percent against the USD. USDJPY has ticked up back to 97.50 mostly on shortcovering following a stronger machinery orders print (suggest the second reading of Q2 GDP could be revised higher) as well as reports that PM Abe has called for a study of a lower tax rate. We however think that with the consumption tax hike debate likely to linger, short JPY positions could remain at risk in the weeks ahead. On the other hand, AUD has come back under pressure following a very weak business conditions reading (still at 4-year lows). Still, Chinese equities continue to move higher suggesting that the risk of a short-squeeze in AUD remains. Today’s session sees the release of the German ZEW which is expected to tick up to 38 from 36.3, erasing its July dip but remaining in the same range below 40 that has persisted since April. We expect GDP data Wednesday to show that the Euro area as a whole has exited technical recession in Q2. A lacklustre and in line print (+0.2% q/q) however will not help EUR with positioning modestly long (BNP Paribas FX Positioning measure at +9 on a -50 to +50 scale. Also, today we have Sweden July CPI which is expected to decline 0.3% m/m. This should contrast with firm Norway price data last week and we remain long NOKSEK heading into the release.
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BNP Paribas