The Euro may be vulnerable to deeper losses if German GDP and regional PMI figures are revised lower, fueling speculation about a looming expansion of ECB stimulus.
Talking Points:
New Zealand Dollar Gains as Terms of Trade Data Boost RBNZ Policy Bets
Euro May Continue Lower if German GDP, EZ PMI Revisions Disappoint
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The New Zealand Dollar narrowly outperformed in otherwise quiet overnight trade, rising as much as 0.2 percent on average against its leading counterparts. The move followed an unexpectedly upbeat Terms of Trade report. The ratio of export vs. import prices rose 0.3 percent in the second quarter, topping bets calling for a 3.5 percent decline. The improvement in the island nation’s external position appeared to bolster RBNZ monetary policy bets, with the Kiwi rising alongside New Zealand’s benchmark 10-year bond yield.
Looking ahead, a busy European data docket is headlined by the final revisions of second-quarter German GDP data and Augusts’ Eurozone Manufacturing PMI print. The former release is expected to confirm that output in the Euro area’s top economy shrank 0.2 percent in the three months through June, marking the first contraction in over a year. The latter is seen matching preliminary estimates showing manufacturing- and service-sector activity in the currency bloc grew at the slowest pace in 13 months.
Eurozone economic news-flow has increasingly deteriorated relative to consensus forecasts since the beginning of the year. Indeed, data from Citigroup suggests realized outcomes are underperforming economists’ bets by the widest margin since June 2013 as of last week. That suggests analysts continue to underestimate the degree of economic slowdown in the region, opening the door for additional downside surprises. Disappointing results on today’s releases may help stoke speculation about a forthcoming expansion of ECB stimulus at this week’s policy meeting, sending the Euro lower. We remain short EURUSD.
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