Forex: PMI, ZEW Reports to Set Tone for Market Dynamics This Week

Talking Points

• Euro Zone PMI, German ZEW Metrics Expected to Weaken Further
• Traders Keen to Gauge Reaction to Soft Data Amid QE Speculation
• Australian, NZ Dollars Outperform as China Flash PMI Prints Higher

The first big dollop of economic data for the week is on tap in European hours, with the preliminary set of Augusts' Euro Zone PMI figures as well as the German ZEW survey of investor confidence set to cross the wires. The former series of reports is expected to show manufacturing- and service-industry growth in the common currency bloc slowed for the fourth consecutive month, yielding the weakest reading in over two years. Meanwhile, the latter is forecast to produce the lowest sentiment reading since January 2009. Taken together, the Euro Zone is the world's second-largest economy, so needless to say such dour performance bodes ill for the global growth at large.

While this ought to sink risk appetite along with sentiment-sensitive currencies in favor of safe havens like the US Dollar, Japanese Yen and Swiss Franc, that cannot be said with certainty in the current environment as anticipation for the central bankers' summit in Jackson Hole, Wyoming that begins on Friday continues to build. As we discussed yesterday, the focus is on the possibility that – as was the case last year – Federal Reserve Chairman Ben Bernanke will use the venue to lay out new measures to prop up the recovery. Against this backdrop, poor economic data may actually serve to boost risk appetite, with dire conditions seen boosting the likelihood of additional stimulus in the pipeline. With today's data set being the first bit of top-tier data to hit the tape this week, the markets' reaction ought to set the tone for the days ahead.

The Australian and New Zealand Dollars outperformed in overnight trade, rising as much as 0.6 apiece against their leading counterparts as stocks rose higher in Asia, boosting the risk-linked currencies, and a report from HSBC showed Chinese manufacturing-sector growth shrank at a slower pace in August than the previous month. Chinese Manufacturing PMI index rose to 49.8, topping the 48.9 reading recorded in July. A print below 50 indicates manufacturing is shrinking, with distance below the “boom-bust” threshold being an indication of velocity. The MSCI Asia Pacific regional stock index rose 1.1 percent, buoyed by the aforementioned Chinese data as well as lingering hopes for additional Fed stimulus to be announced on Friday.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com