Euro Ignores disappointing ZEW, Onto BoC

Eurozone Policy Paper Boosts Sentiment; Onto BoC Rate Announcement

USD drops amid improving sentiment based on Eurozone policy paper. Euro ignores disappointing German and Eurozone ZEW indices. Markets awaits BoC rate decision and US housing data.

USD started to weaken across the board even before London traders got to their desks. The much improved sentiment can be attributed to a policy paper that describes three main options how to tackle the Greek problem. The options range from debt buyback with credit enhancements to taxing the banking sector with no buybacks. Also included is the French plan that would lower bond rates while extending maturities. As there are various options on the table, there are growing chances that Eurozone leaders will reach an agreement in Thursdays summit.

On the data front, German ZEW Economic Sentiment index dropped to -15.1 in July from Junes -9 and Eurozone ZEW Economic Sentiment fell to -7 from previous -5.9.

Gold pulled back slightly off the new highs but continues to trade above $1600. Until Thursdays meeting or more importantly until the US debt ceiling situation is resolved gold is likely to continue ralling.

New York session kicks off at 8:30 am ET with Canadian Leading Indicators index for June which is expected to improve to 1.2% from previous 1.0%. The reaction is likely to be muted as CAD traders will wait for the much more important Bank of Canada rate decision at 9:00 am ET. Interest rates are expected stay where they have been since September 2010 at 1.0%.

Both CPI and core CPI have been gradually increasing and jumped higher last month. The labor market has been improving steadily, albeit at a slow rate. Even though the interest rate will likely stay the same today, the CAD could rally on the accompanying BoC rate statement that could signal upcoming interest rate increases.

News from the US include housing data released at 8:30 am ET. Building Permits are expected to reach 0.61M, the same result as a month earlier. Analysts expect the Housing Starts to improve to 0.58M from previous 0.56M.