The Euro reversed US session gains overnight, falling to challenge the 1.47 level, while the British Pound dipped below 1.85 once again. A busy calendar awaits in the forthcoming European session. Most notably, Germany’s economy is expected to shrink in the second quarter, putting the metric at the worst in three years and taking the Euro Zone’s biggest economy within 3 months of recession.

September’s GfK Consumer Confidence Survey will give a timely look at how Germany will close out the third quarter, with forecasts putting the metric at 2.0, the lowest on record. In a bit of positive news, Augusts’ IFO Survey is expected to improve a hair to print at 90.3 versus 90.0 in July. The ZEW Survey of analysts’ sentiment improved in the same period on lower oil prices and a softer Euro. A similar dynamic could be seen here, though crumbling hopes for lower borrowing costs could derail optimism. Indeed, the market continues to price in a muted response to sagging growth from monetary authorities. As we noted yesterday, traders expect the European Central Bank to cut interest rates by just 25 basis points in the next 12 months. The market called for 50 basis points as recently as four days ago. It seems ECB President Jean-Claude Trichet and company are betting that cheaper resources will see production costs decline and thereby provide a boost to growth without the need for monetary stimulus.

source: dailyfx.com