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The Euro has been choppy overnight trading between 1.4050-1.4100 as it was initially weighed by German unemployment data and then buoyed by an increase in optimism in the region. Euro-Zone economic confidence in July rose to 76.0 from 73.2 which was the fourth straight improvement.

Talking Points
• Japanese Yen: Climbed Back Above 95.00
• Pound: Home Prices Rose For A Third Month
• Euro: Higher On Improving Sentiment
• US Dollar: Initial Jobless Claims On Tap

Euro Choppy As German Employment Data And Sentiment Indicators Give Mixed View

The Euro has been choppy overnight trading between 1.4050-1.4100 as it was initially weighed by German unemployment data and then buoyed by an increase in optimism in the region. Euro-Zone economic confidence in July rose to 76.0 from 73.2 which was the fourth straight improvement. Consumer confidence for the same period also improved to -23 from -25 as low interest rates and government stimulus has improved the outlook for the economy. However, the number of unemployed Germans rose to 3.46 million from 3.41 million. Yet, on a seasonal adjusted basis there was a decline of 6,000 which left the unemployment rate unchanged at 8.3%. Bloomberg Retail PMI figures also crossed the wires showing a decline for the fourteenth month to 47.3 from 47.5

Despite the increase in the number of unemployed Germans and decline in retail sales, there were signs of improvement for the economy outside the improved sentiment readings. Indeed, the unemployment rate remaining unchanged and the decline in retail sales was mostly driven by slumping automobile demand which offset gains in clothing and household goods. Additionally, Germany-the region's largest economy- showed an improvement to 49.8 from 46.0. However, there remain concerns that German banks restrictive lending practices could hamper growth. Tight credit markets and German CPI falling to -0.6% has lowered interest rate expectations for the region as the ECB will be hard pressed to start tightening with credit markets remaining frozen and deflation risks alive.

The pound reached back above 1.6500 before finding resistance as it found support early in from a rise in U.K. house prices. Nationwide building society reported that prices rose for a third straight month in July by 1.3% as inventory levels have started to fall. The increase in home values exceeded median estimates of 0.2% which builds upon yesterday's improvement in mortgage approvals to paint a rosier picture for the sector. It is widely viewed that a recovery for the U.K. economy is dependent a rebound in the housing sector and the loosening of credit standards. We have started to see credit markets thaw and as Britons gain equity in their homes it should make itt easier for them to obtain funds for other purchases.

The dollar was mixed overnight as it see sawed against high yielders but saw weakness against the sterling despite European equity markets trading higher. We have started to see recent correlation trends begin to fail to hold which could be a sign that we are seeing a new paradigm emerging. Therefore, the greenback's relationship to risk has to be evaluated on a daily basis at this point as signs the U.S. economy is stabilizing may begin to generate support for the dollar. Indeed, we saw the Fed Beige book report show that most federal districts are moderating or stabilizing which has raised expectations that we could see a return to growth in the third quarter. We will get 2Q GDP figures tomorrow which will give us further insight and could keep markets on hold until then. Initial jobless claims is the only release scheduled today and although it does have market moving potential we would need to see a significant variation from estimates to create sustainable momentum. The level of unemployment is expected to rise to 570,000 from 554,000 but we have seen the level consistently below 600,000 which is a sign of improvement.

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To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com