Intraday Market Thoughts

Europe Integrating Without Eurobonds, US IP Gains

by Adam Button
Aug 17, 2011 0:36

Euro rebounded back above 1.44 despite no concrete action from Merkel/Sarkozy summit. In the US, risk aversion ramped up despite better-than-expected industrial production. We examine the forces at work in EUR trades. By

As Ashraf said earlier, the Merkel/Sarkozy meeting was low on substance but it did not rule out the idea of eurobonds. The takeaway from the meeting was not action but about pledges to further integrate European economies, finances and laws. These two nations are the driving forces in the euro experiment and even if major reforms in the Eurozone take place (such as removing Greece), there appears to be a strong desire to unify policy.

Integrated leadership and affirmations to work toward constitutional deficit limits would be incredibly bullish for the euro if: a) periphery finances werent in such dire shape b) US and European economies were performing at capacity.

Of course, that's not the case but we cant forget that outside of the sovereign debt crisis, positive things are taking place in Europe. Think of long-term European integration as a positive force battling repeated calamity in the periphery. This was reflected in the bounce in EUR/USD above 1.44 and should also be seen as a positive for risk assets.

Outside of the eurozone drama, mild risk aversion was the theme. The S&P 500 fell 1% to 1193 despite solid US economic data.

The automotive sector was behind the 0.9% July rise in US industrial production as vehicle manufacturing drove the rise above the +0.5% expected. Supply chain disruptions had slowed production by as much as 8% beginning April but the 5.2% monthly rise in July now closes the gap. Outside of autos, manufacturing production grew by a solid 0.3% but still REMAINS 7% FROM PRE-CRISIS HIGHS. We expect much of this to be filled in over the coming year but it will only add modestly to employment and GDP.

Canadian manufacturing sales fell 1.5% in June compared to the -0.5% expected. It was the third consecutive monthly decline; with USD demand slipping and CAD remaining near record levels, the outlook is negative.

Cable capped four sessions of gains by touching the highest since May but the pair then stalled out below 1.65 in an area of intense resistance. We believe this area of resistance will hold but keep an eye on the daily chart. Take a look at our the Premium trade positioning in EURGBP as well as the latest in sIlver.

The Asia-Pacific calendar is bare on Wednesday


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