This is article is released weekdays under the heading Daily Fundamentals at 5pm EST on

The British Pound held on to the 1.65 level against the US Dollar after coming off the late NY-session high in overnight trading ahead of a report that is set to show Retail Sales grew for the second straight month in July. Switzerland's Trade Balance and ZEW survey of investor confidence are also on tap.

Key Overnight Developments

• Australia Recalls Ambassador to China for ‘Urgent Meeting'
• RBA Sold A$705 Million into Currency Markets in July
• Euro, British Pound Yield Flat Result After Choppy Session

Critical Levels


The Euro stands effectively flat having spent much of the overnight session in choppy consolidation above the 1.42 level. The British Pound followed suit, oscillating above the 1.65 mark.

Asia Session Highlights

Australia's ambassador to China, Geoff Raby, was told to return to Canberra on such a short notice to participate in urgent talks considering the waning relationship between the two countries, reports have said. Moments ago, Prime Minister Kevin Rudd stated that Australia-China relations are full of challenges. Much of the diplomatic tensions came after China detained Rio Tinto executive Stern Hu in an espionage dispute. It is of some worry that trade between the two nations will suffer as a result. Grief between the two comes during a period in which the 1.3-billion person nation found itself to be the largest single country destination for Australian exports. Since the start of the year, Australian shipments to the Asian country have surged 54%. But with Australia failing to even show up in the official export statistics figure for China, it appears as though the latter has less to worry over its ties with the former.

The Reserve Bank of Australia reduced the level sold of its domestic currency in July to A$705 million after a month in which they sold a record amount, A$1.943 billion. Since the start of the year, the bank has sold a net total of nearly A$6.0 billion in the foreign exchange market. Selling has come during a period in which the Australian Dollar gained 16.3% on a trade-weighted basis and 19% against the greenback. Price action of this nature probably hurt the country's export sector in an already weak global trading environment. June, however, saw these efforts pay off after the trade balance unexpectedly shrunk for the first time since March on export strength.

Euro Session: What to Expect

UK Retail Sales are set to add 0.4% in July, the second consecutive month in positive territory. The annual pace of growth is expected to register at 2.7%, a bit lower than the previous month's 2.9% result but certainly better than the -2.0% drop registered in May, the largest in 17 years. The metric has seen atypical volatility over recent months as rising unemployment levels grappled with rebounding asset values and government stimulus for dominance over consumer sentiment. On balance, we see the downside scenario as more plausible: fiscal support is inherently limited with the UK budget deficit already set to average over 12% of GDP though 2010, threatening the country's sovereign credit rating; meanwhile, global equity valuations are looking increasingly overdone having finished last month at the highest level relative to earnings since 2003. Unemployment growth, meanwhile, looks far more permanent, with a survey of economists conducted by Bloomberg expecting a steady rise to put the jobless rate just shy of 9% by the end of next year. Clearly, this points to the likelihood of a down trend in retail activity for the time being.

Turning to Switzerland, the Trade Balance surplus may narrow again in July as exports extend a multi-month downtrend after dropping by a whopping 23.5% in the previous month, driven lower by lackluster demand in the mountain nation's main overseas markets. On the opposite side of the equation, the import price index fell at the fastest pace on record in July, suggesting a healthier domestic appetite for overseas goods than the other way around. Separately, the August edition of the ZEW Survey of investor confidence is also on tap.

To reach Ilya regarding this article or subscribe to his email distribution list, please contact him at