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German wholesale prices are expected to have contracted by a sharp amount in July after labor data came in significantly weaker-than-expected. Asia saw the Bank of Japan state that conditions in the country had improved after a resurgence in exports and industrial production, but failed to give any hints as to whether the bank would raise its policy rate at any time in the coming months.

Key Overnight Developments

• Australian Business Confidence Rises to Two-Year High
• Bank of Japan Says Conditions Are Improving
• China Exports Surge on Rise in U.S. Demand

Critical Levels



Euro price action remained mostly calm throughout the day after five consecutive sessions in which the currency lost value against the U.S. Dollar. Losses on the pair may be coming to an end after inching closer toward upward sloping support dating back to the lows on 06/16, 07/08, and 07/30. At the time of this publishing the British Pound

Asia Session Highlights



New Zealand purchases made with either credit or debit cards rose by 0.8% in July after a month in which they fell by 1.0%. When adjust for seasonality effects, such transactions rose by 1.2%. Most of the activity came from the non-retail and consumables industries. This marks the fifth time in six months that the metric rises. As such, the trend for purchasing goods with electronic cards has been upward. A closer look reveals that New Zealanders have actually been reducing their reliance on credit. July marked the 10th straight month in which the annualized percentage of card purchases were based on credit declined.

Australian Business Confidence rose to a two-year high as global activity saw demand for Australian-made goods unexpectedly jump. Indeed a National Australian Bank survey of business confidence rose to an index level of 10 from a level of 4 in July. Marked by an impressive June, which saw the trade deficit shrink on a 1.5% gain in exports, businesses may be feeling a bit more optimistic about their future state. Reserve Bank of Australia seems to be sharing some of the sentiment. At their latest meeting on July 04, the bank stated that "economic conditions in Australia have to date not been as weak as expected a few months ago." Indeed, they also revised their growth estimate significantly upward by 0.5% after initially expecting the economy to contract by 1.0%.

China’s Exports surged ahead 10.5% in July from the month prior. The yearly figure, however, continued to decline from that of June. Overall, the trade balance actually improved to $10.63 billion from $8.25 billion. Business with the United States continued to improve for a second straight month as exports to the country jumped 14.21%.Despite the resurgence in export activity Consumer Prices in the nation declined more than expected by 1.8% vs 1.6%, marking the seventh straight month in which deflation gripped the economy.

Not surprisingly, the Bank of Japan left its policy rate at 0.10% by unanimous vote.The statement accompanying the release made it a clear point that “Japan’s economic conditions have stopped worsening.” They cited improvements in exports and production after Machine Orders rose 9.7% with such orders from abroad surging 43.8%.Overall exports had risen 6.3% as well. Despite the initially positive tone in the statement, the bank noted that there would likely be an acceleration in the rate at which prices decline.They did, however, state that a significant reason for the year-over-year decline in prices was due to the historically high cost of oil last summer compared to the price of the commodity at the present time. The Bank of Japan offered no new insights as to any possibly redirection in the manner that they conduct their monetary policy.

Euro Session: What to Expect



Germany will be releasing the final revision of July’s Consumer Price Index. Preliminary data showed that such prices declined 0.1% in the period, but had contracted 0.6% in the 12 months leading up. Wholesale Prices, however, will be more closely watched. The consensus forecast expects the price of raw goods to have declined by 9.7% in the year through July. A sharp move down is very likely after Retail Sales plummeted in the month prior. Expectations for the figure had called for an increase in such spending of 0.5%, but in reality, consumers reduced their expenditures by 1.8%. Decreases in the amount of inventory sold would lead store owners to also decrease the demand for the consumer goods they wish to sell. As such, one might expect production of these items to decline as well. Such a dynamic might then lead the sellers of wholesale goods to decrease their prices in an effort to induce manufacturers to purchase such materials while they’re still affordable. Furthermore, July saw employers within Germany shed 6,000 jobs after expectations had called for an increase of 43,000 of such positions. The downward pressure exerted on the broader price scheme by a country with dwindling working population will likely be seen in tomorrow’s data release.

The Visible Trade Balance for June is expected to have slightly improved from its current deficit into one that is not as wide. A move to a £6200 million deficit would be the best of such cases since May 2006. UK House Prices, according to the Department of Communities and Local Government (DCLG) are expected to have slowed the pace of deterioration in the year through June. We might, however, see the mentioned pace decline by even more than that which is expected by a survey of economists. During the Asian session we saw the RICS House Price Balance beat expectations by a significant amount. While forecasts called for this figure to decline by 10.0% (which still would have been better than the previous decline of 17.6%), the realized figure was published at -8.1%. This surprisingly optimistic result may spill into the DCLG figure.

Written by Luis Gil, DailyFX Research
Article Source - Wholesale Prices Expected to Decline Sharply, Euro May Follow (Euro Open)