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Euro-zone Sentiment on the Slide

Written by A Forex View From Afar on Thursday, July 24, 2008

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Recently the Euro-zone has developed a new trend on the calendar by missing virtually every possible release that gauges investor sentiment and future expectations. From the simplest releases to the most complex, the Europeans have missed them all, and that in itself is very unusual, and bucks the trend.

On Thursday the Euro-area has three scheduled releases that can be used very well to gauge expectations: the German PMI (Purchase Managers Index), Euro-area PMI and the IFO release. The PMI release has shown clearly that the service and manufacturing side of the economy in the fifteen member states are in a contraction phase, and that analysts expect a further deterioration from last month. At the same time, the IFO surveys show the Business Climate index is barely holding onto positive ground and that future expectations are in a falling trend, and have been since September last year, reaching the lowest read of 94.7 last month.

If the analyst estimations are missed again on Thursday the euro may continue to tumble below the 1.5700 area, where it seems the pair may find a support for the time being. At this time the market is looking at long dollar positions and if the above works through, the market will have another reason to buy the dollar and sell the euro. In doing so it can really test the resolve of whoever has parked protective orders at 1.5650, because they are there, and at the same time test oil speculators resolve. A stronger dollar equates to weaker crude oil prices, and that may create a euro slide as inflation expectations and growth forecasts decline.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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