Breaking News

German IFO OK, But EUR/USD Capped On Fears About China‏

By Boris SchlossbergForexJun 24, 2013 06:26AM ET
German IFO OK, But EUR/USD Capped On Fears About China‏
By Boris Schlossberg   |  Jun 24, 2013 06:26AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
Market Drivers for June 24, 2013
  • Worries about liquidity in China send Asian stocks lower, AUD/USD tests 9150
  • IFO basically in line creating minor selloff in EUR/USD
  • Nikkei -1.28%
  • Europe - 1.12%
  • Oil $93/bbl
  • Gold $1280/oz.
Europe and Asia

EUR: German IFO - Business Climate 105.9 vs. 105.9
EUR: German IFO - Current Assessment 109.4 vs. 109.6
EUR: German IFO - Expectations 102.5 vs. 102

North America

USD: Chicago Fed National Activity Index

Asian markets were destroyed on the first trading day of the week with the Shanghai index particularly hard hit as it dropped by -5.3% as investors continue to worry that Chinese policy makers will maintain their hawkish bias on monetary policy, tightening credit supply further. Short term interbank lending rates in China have surged as the government continues to appear nonplussed by the liquidity tightening.

The rise in risk aversion during the Asian session took its toll on AUD/USD once again with the pair making fresh lows as it tested the .9150 barrier. The one way trade in the Aussie continues with the shorts now eyeing the psychologically key .9000 level - and if the selloff in Chinese assets continues as theweek proceeds - that target may be reached within the next several days.

The economic slowdown in China is now acting as the key counterpoint to the improvement in US economic activity and the imbalance in growth between the world's two biggest economies is likely to become the key market theme as the summer proceeds. It is simply impossible to imagine sustained global growth with the US acting as the solo locomotive for demand. Therefore, this divergence in performance between the world's biggest economies is likely to cause more panic among investors, accelerating risk aversion flows unless some improvement is seen.

The goldilocks scenario for global growth would entail a soft landing in China, a quickening recovery in Europe and an acceleration of activity in the US. But such a bullish outcome is clearly being doubted by the market and if the US begins to falter as the summer proceeds, risk assets will come under enormous pressure as investors pare back their bets.

The threat of a China slowdown was even evident in the EUR/USD trade today. The IFO sentiment survey was generally in-line with expectations, with the forward component even beating consensus by a bit. But EUR/USD failed to rally off the news, as investors remain concerned about German exports to China. With exports the key driver of growth in the economy, market participants are greatly concerned that a German recovery could sputter badly if demand from China begins to collapse. The pair made a half-hearted attempt to rally through 1.3125, but has met selling at those levels throughout the morning's European session.

In North America today the calendar is barren and equity markets may see some selling pressure on the open as traders digest the overnight activity in Asia. The EUR/USD remains under pressure and any further selloff could create a test of the 1.3050 level as the day proceeds. However, if there is little follow through to the selloff in Shanghai, the pair could stabilize and try to stage a short covering rally towards 1.3150 as consolidation continues.
German IFO OK, But EUR/USD Capped On Fears About China‏
German IFO OK, But EUR/USD Capped On Fears About China‏

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Are you sure you want to delete this chart?
Write your thoughts here
Replace the attached chart with a new chart ?
Post also to:
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email