These days we face a new reality in the Forex market, where the Euro is weaker as traders look ahead to the potential drop in tomorrow's German IFO report. Both the weaker German ZEW and Belgian manufacturing surveys suggest that business confidence could have also deteriorated in the month of July.



Although analysts? sentiments and business? sentiments have had a weak correlation over the past few months, the Belgian survey tends to be a reliable leading indicator for the IFO. The drop could be limited however since the World Cup did not end until July 9th, which may have effectively prolonged the World Cup's effect on the economy. If you recall, it was also the World Cup that sent business sentiment to a 15 year high last month. Of course, these alarm bells have been ringing for some time and to date there have been limited evidence that a sharp housing driven contraction is underway. Yet it is difficult to find arguments to support a further Euro weakening aside from high US Dollar yield in the Forex market.



Meanwhile despite the Euro's retracement, economic data released today was mixed. French business confidence increased from 107 to 109 in the month of July while preliminary German consumer prices increased 0.4 percent this month. However Italian business confidence dropped from a downwardly revised 98.3 to 96.7. The Eurozone current account balance also deteriorated from a surplus of 0.9 billion to a deficit of 8.2 billion. Over in Switzerland, economic data continues to outperform its neighbors. The UBS consumption indicator jumped to a 5 year high of 2.111, which is indicative of strong consumer spending in the second quarter Forex.

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