August 12, 2014 / 11:16 PM / 3 years ago

FOREX-Euro off lows - China data, BOE report to set tone

* Euro recovering from overnight lows

* Sterling eyes BOE economic update

* China industrial production & retail sales also in focus

By Ian Chua

SYDNEY, Aug 13 (Reuters) - The euro nursed only modest losses early on Wednesday, having regained quite a bit of ground as markets got over a closely watched report that showed a slump in German economic sentiment.

The common currency last traded at $1.3369, after coming within a whisker of a nine-month trough of $1.3333. Euro bears emerged after German analyst and investor morale fell sharply as the crisis in Ukraine took a toll.

“The German ZEW expectations survey disappointed yet again after seven consecutive months of below-consensus prints. The miss was the largest this year and continues to suggest further loss of momentum,” analysts at JPMorgan wrote in a note to clients.

Yet, no follow-through selling in New York saw the euro slowly recover and by the end of trade, it was down a mere 0.1 percent on the greenback.

Still, the common currency was among the worst performers in what was another lacklustre session.

It’s partial recovery knocked the dollar index to 81.504 from a near one-week peak of 81.676. Against the yen, the euro fetched 136.75, off a low of 136.37.

With geopolitical risks seemingly pushed to the backseat for now, the market will take its cues from a batch of economic data out of Asia.

Up first, Japan’s second quarter growth data due at 2350 GMT is expected to show the economy shrank for the first time in nearly two years.

Such an outcome could bolster expectations for more stimulus from the Bank of Japan, which has so far maintained an upbeat economic view despite recent soft data.

That could weigh on the yen, although currency markets usually pay scant attention to Japanese data.

Later in the day, China’s industrial production and retail sales data will take centre stage.

That will be followed by an update of the Bank of England’s economic forecasts at 0930 GMT, with markets keen to see if there will be any hint of whether interest rates will rise this year.

A more robust recovery and a sharp drop in unemployment have markets betting on a rate rise either late this year or early in 2015.

Sterling managed to squeeze up to $1.6811 from a two-month low of $1.6757, but expectations for clear policy guidance are pretty low. (Editing by Eric Meijer)

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