Euro Vulnerable If Third-Quarter GDP Continues to Show Weak Private Sector

The Euro may see selling pressure in European hours even as Euro Zone economic growth advances for the second consecutive quarter if the outcome relies heavily on government stimulus while the private sector remains weak, casting doubts on the sustainability of recovery.

Key Overnight Developments

• New Zealand House Sales Grow as Slower Pace in October
• Euro Consolidates, British Pound Pushes Higher in Overnight Trading

Critical Levels



The Euro crept higher off the low set in US hours but failed to build any significant momentum, spending much of the Asian session consolidating in a narrow 20-pip range above 1.4850. The British Pound pushed slightly higher, adding as much as 0.2% against the US Dollar.

Asia Session Highlights



With nothing of particular significance on the economic calendar, currency markets took an opportunity to consolidate in overnight trading. The Real Estate Institute of New Zealand (REINZ) reported that House Sales grew at a slower pace in October, but the figure was firmly within the range of outcomes seen after the metric peaked in May. September’s JapaneseIndustrial Production figures were revised slightly higher while Consumer Confidence figures printed within hair of expectation, with both general and household sentiment continuing to flatten out since August as the impact of fiscal stimulus begins to wane.


Euro Session: What to Expect



Gross Domestic Product figures out of the Euro Zone top the economic calendar in European hours, with the region’s top three economies (Germany, France, Italy) as well as the currency bloc as a whole expected to post the second consecutive quarter of positive growth in the three months to September. While the figures in and of themselves should not prove too market-moving, the breakdown of where growth came from will be critical. Second-quarter figures relied heavily on government spending to underpin output, but traders have become increasingly suspect of the sustainability of the rebound once the impact of fiscal stimulus peters out. Indeed, Germany’s ZEW survey of investor confidence dropped for the second consecutive month to the lowest level since July earlier this week. To that effect, the Euro will be vulnerable if third-quarter figures do not reveal meaningful evidence that the private sector is at least somewhat ready to pick up the baton after public funds are withdrawn.