German ZEW Data Drives EUR/USD Toward Nine-Month Low

The EUR/USD broke to nearly a nine-month low on Tuesday, coming close to taking out last week’s low at 1.3332. Driving the selling pressure today was a weaker-than-expected gauge of German investor sentiment.

Today, the ZEW reported that its monthly survey of German investors fell to 8.6 in August from 27.1 in July, its latest reading since December 2012. The dismal number largely reflects concerns over the European Union’s conflict with Russia over Ukraine and worries about the effects of the sanctions on Russia.

The GBP/USD broke to a nine-week low before technical factors helped reverse the market to the upside. The catalyst behind today’s early session weakness was a report showing U.K. food sales declined the most in at least 5 ½ years.

According to the British Retail Consortium, supermarket price cuts led to the biggest decline in sales by value since the data began being tabulated in December 2008. This news led to the sell-off, however, position squaring and technically oversold conditions contributed to the reversal.

Investors squared up positions ahead of tomorrow’s speech by Bank of England Governor Mark Carney. Carney will deliver new economic projections in the quarterly Inflation Report on Wednesday. This report should reveal clues as to the timing of the BOE’s first interest rate hike since 2007.

December Comex Gold prices rose on Tuesday after the release of the weak German economic data fueled concerns about the health of Europe’s strongest economy. Also contributing to the rally in gold was renewed concerns about the conflicts in Gaza and Iraq along with the geopolitical concerns over the Ukraine and Russia conflict.

Traditional investors tend to flock to gold during times of economic distress and geopolitical turmoil in the belief that it will hold its value better than higher-risk assets.

October Crude Oil futures are trading lower on Tuesday, but technical factors have some believing the market is simply forming a short-term bottom. Last week, the market reached a multi-month low before reversing to the upside. Today, the market appears to be trying to form a potentially bullish secondary higher bottom.

Fundamentally, the longer-term fundamentals look weak because of oversupply and expectations of lower demand, however, the number of geopolitical events may be attracting speculative support. This may be enough to form a support base which could scare a few of the weaker shorts out of the market. However, in order to produce a substantial rally, there must be a threat to supply. The situation in Iraq offers the best opportunity for a supply disruption if the militants advance toward the refineries in Southern Iraq.