The EUR/USD declined for the second day and reached a low of 1.4636 following the rise in risk aversion, and the single-currency may continue to trend lower against the greenback as investors speculate the Federal Reserve to signal an end to its emergency programs later this week.
[U][B]Talking Points[/B][/U][B]
• Japanese Yen: USD/JPY Fails to Break 10-Day SMA
• Pound: Public Sector Borrowing Jumps in August
• Euro: Current Account Expands
• US Dollar: Risk Trends to Lead the Way[/B]
The EUR/USD declined for the second day and reached a low of 1.4636 following the rise in risk aversion, and the single-currency may continue to trend lower against the greenback as investors speculate the Federal Reserve to signal an end to its emergency programs later this week. At the same time, Germany’s Finance Ministry argued unemployment has been “unusually moderate” during the worst economic downturn in the post-war period, and sees a risk of job losses intensifying going into the following year as the effects of the government stimulus starts to taper off.
The Finance Ministry went onto say that “in the view of the low level of production and the related under-utilization of the economy’s production capabilities…stronger adjustment reactions on the labor market are yet to come,” but anticipates household spending to bolster economic activity in the third-quarter as consumer sentiment improves. Moreover, the Bundesbank reinforced an enhanced outlook for the region as the central bank expects the rebound in exports to shore up the economy as the stimulus fades, and projects a “noticeable” recovery in the third quarter as trade conditions improve. Meanwhile, ECB board member Gertrude Tumpel-Gugerell said that the “the worst financial storm since the 1930s is only gradually calming down,” and supporting the banking system is the key to ending the crisis as global finances remain far from normal.
The British pound weakened against the greenback for the third day and slipped below the 100-Day moving average (1.6254) to reach a low of 1.6134 during the overnight trade, and the slump in risk appetite may lead the pair to test the monthly low for near-term support as the reserve currency continues to benefit from safe-haven flows. However, as the GBP/USD holds the broad range from mid-August, we may see the pair attempt to retrace the overnight decline and continue to trend sideways over the week as investors weigh the outlook for future policy. Meanwhile, the Rightmove house price index rose 0.6% in September after falling 2.2% in the previous month, with the annualized rate slipping1.5% from the previous year after sliding 3.1% in August. The data encourages an enhanced outlook for the region as policy makers take unprecedented steps to soften the landing of the economy, and demands for housing should continue to pick up over the coming months as policy makers anticipate economic activity to improve throughout the second half of the year.
The greenback advanced across the board following the rise in risk aversion and may continue to strengthen going into the North American trade as equity futures foreshadow a lower open for the U.S. markets. Meanwhile, the leading indicator for the U.S. is anticipated to improve for the fifth consecutive month in August, with economists forecasting the index to rise 0.7% from the previous, and the data is likely to support the dollar rally as investors speculate the Federal Reserve to hold the benchmark interest rate at 0.25% and concluded its easing cycle over the coming months. As a result, the reserve currency may continue to appreciate against its major counterparts as market participants anticipate the central bank to hold a hawkish tone going into 2010, and the rise in the interest rate outlook is likely to drive the exchange rate higher throughout the second half of the year as investors speculate the Fed to tighten policy over the next 12 months.
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Forex Weekly Trading Forecast - 09.21.09
[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]