Euro Adrift on Falling Summit Expectations

The highly anticipated EU Summit finally begins on Thursday but hopes for a comprehensive solution are nearly nil. Risk trades improved slightly on better US economic data with AUD leading and GBP lagging. Japanese retail sales are the highlight of Asia-Pacific trading. Analysis & rationale has been added to last nights Premium Insights on EURUSD, USDJPY, USDCAD and gold. See more below.

The Spanish delegation will be in a better mood than their Portuguese counterparts heading into the Summit. Meanwhile, the Italian and German delegations surely wont be scheduling any meetings in the early evening as Euro 2012 reaches its final stages. The leaders might as well watch the games with market participants now expecting almost nothing of substance from the get-together.

Officials need a laser-like focus on growth and lower borrowing costs but are distracted by grandiose 10-year proposals for a united Europe. The market remains fearful of positive headlines but will be eager to sell the euro if nothing materializes.

The market was quietly optimistic ahead of the Summit with US stocks gaining 0.9%. The mood improved after May durable goods orders rose 1.1% compared to 0.5% expected. The details of the report were mixed but orders excluding defense and aviation were roughly in-line with expectations. After so many weak numbers since the start of May, simply meeting expectations was enough to boost sentiment. Housing also appears to be stabilizing with pending home sales up 15.3% y/y compared to the 9.9% consensus.

The Asia-Pacific calendar is relatively busy after a quiet start to the week. At 2350, Japan will release retail sales for May. The consensus estimate is a 2.9% y/y rise following the 5.8% increase in April. In month-over-month terms, a 0.2% rise is expected.

Other releases include Australian HIA new home sales and New Zealand business confidence from NBNZ, both at 0100 GMT. A half-hour later, Australian May job vacancies will be released.

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-AB