Euro at Risk as French and German Finance Ministers Meet, Aussie Sold

Euro at Risk Amid Continued Dithering as French, German FinMins Meet

German IFO Drop Unlikely to Produce Lasting Reaction from FX Markets

Dallas Fed Manufacturing Survey May Dent QE3 Hopes, Boost US Dollar

The US Dollar consolidated against most of its top counterparts as an absence of big-ticket catalysts left currency markets in consolidation mode. The Australian Dollar narrowly underperformed as year-to-date Chinese Industrial Profits fell at an annual pace of 2.7 percent, marking the sharpest contraction in five months. The outcome stoked fears about fading Chinese demand for Australian exports, the key driver behind the mining boom that has kept the country’s economy relatively well-supported through the 2008 crisis and its aftermath.

Looking ahead, a meeting between the German and French Finance Ministers (Wolfgang Schauble and Pierre Moscovici, respectively) is in focus. The two are expected to discuss goals for Greece’s debt-reduction efforts, but concrete progress seems unlikely. Indeed, Eurogroup leader Jean-Claude Junker and German Chancellor Angela Merkel both signaled that any decision on extending the deadline for Athens to complete its austerity efforts will have to wait until inspectors from the EU/ECB/IMF “troika” complete their assessment of Greece’s progress.

With that in mind, the lack of action itself may prove to weigh on the Euro. Anticlimactic developments late last week revealed investors’ frustration with a lack of directional cues – whether positive or negative – from Eurozone officials. Markets may be approaching a juncture where price action forces policy once again, with selling pressure emerging amid signs of continued dithering.

On the data front, the German IFO gauge of business confidence is in focus. Expectations call for the headline Business Climate reading to drop to 102.7, the lowest since March 2010. The outcome seems unlikely to produce a lasting impact on the Euro in and of itself considering its limited implications for ECB monetary policy, where traders remain preoccupied with the details of the central bank’s opaque bond-buying scheme.

Later in the session, the spotlight shifts to the Dallas Fed Manufacturing Surveyas traders set the backdrop for Friday’s much-anticipated speech from Ben Bernanke at the Jackson Hole central bank symposium, which many hope will bring an announcement of QE3. Expectations call for a narrow improvement in August after the metric hit a 10-month low in July. Such a result may turn the markets’ attention to the recent improvement in US economic data, denting stimulus bets and boosting the greenback.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
23:01	GBP	Hometrack Housing Survey (MoM) (AUG)	-0.1%	-	-0.1%
23:01	GBP	Hometrack Housing Survey (YoY) (AUG)	-0.5%	-	-0.5%
1:30	CNY	Industrial Profits YTD (YoY) (JUL)	-2.7%	-	-2.2%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
-	EUR	French, German Finance Ministers Meet	-	-	Medium
6:00	EUR	German Import Price Index (YoY) (JUL)	1.2% (A)	1.3%	Low
6:00	EUR	German Import Price Index (MoM) (JUL)	0.7% (A)	-1.5%	Low
8:00	EUR	German IFO – Business Climate (AUG)	102.7	103.3	Medium
8:00	EUR	German IFO – Current Assessment (AUG)	110.8	111.6	Medium
8:00	EUR	German IFO – Expectations (AUG)	95.0	95.6	Medium
9:30	EUR	Germany to Sell €3B in 12mo Bills	-	-	Low
13:00	EUR	France to Sell €7B in 3-, 6- and 12-mo Bills	-	-	Low