The Euro was trading below the 1.300 price level for most of overnight trading on the back of declining equity markets, before an unexpected increase in the German ZEW print sent the EUR/USD to as high as 1.3022.
[B][U]Talking Points[/U]
• Japanese Yen: Consolidating Above 98.50
• Pound: Brown Pledges Action Following G-20
• Euro: German Zew Unexpectedly Rises
• US Dollar: Producer Prices On Tap
[U]Euro Finds Support After Unexpected Increase in Investor Sentiment[/U][/B]
The Euro was trading below the 1.300 price level for most of overnight trading on the back of declining equity markets, before an unexpected increase in the German ZEW print sent the EUR/USD to as high as 1.3022. Indeed, investor confidence rose for a second month to -3.5 from -5.8 in March despite ongoing concerns over the banking system and a deepening recession for the country. However, the survey did show a decline in the current assessment as things continue to worsen in the region.
The improvement in sentiment and stabilizing prices will take some of the pressure off of the ECB which has come under scrutiny for not acting aggressive enough. As other central banks have brought their lending rates near zero and have embarked on off balance sheet efforts the ECB remains committed to their measured approach. Many fear that it will extend the length of the regions recession and cause a divide between the stronger and weaker economies which could threaten its existence. Until then the single currency’s status as a high yielder will keep it linked to risk appetite and traders should take a cue from equity markets when trading it.
The Pound fell to an intraday low of 1.4017 as declining risk appetite has pressured the currency. Additionally, the ongoing quantitative easing efforts remain a drag on Sterling. However, if we see 1.400 hold as support then the GBP/USD may look to carve out a new range between 1.4000-1.4500. The pound’s reaction to tomorrow’s U.K. employment report will give us a clue to future price action as it is expected to show the economy lost another 84,000 jobs. Meanwhile, U.K. house price falling another 11.5% according to the DCLG U.K. house price index shows that the central bank will need to remain committed to their efforts in order to stabilize the housing market. Sterling has started to find some support after the better than expected German investor confidence survey
The dollar has remained supported through overnight trading as recent risk appetite has started to wane. Confidence is increasing that the banking sector troubles will start to disappear as the global efforts to reinforce them take hold, but traders remain cautiously optimistic. The consensus is that governments still need to do more in particular the FOMC. Expectations are that the central bank following their two day meeting will announce more aggressive measures to increase monetary expansion. Markets have started to focus on credit card defaults after American Express announced that write offs in February rose 8.7%. These concerns have weighed on European equity markets and could carry over to the U.S. today, which could add further greenback support. Producer prices will cross the wires and is expected to show an annualized decline of 1.4% after a 1.0% drop in January. The drop in factory gate costs will allow the Fed to continue to expand its balance sheet with it concerns of fueling near-term inflation. Meanwhile, housing starts are expected to have fallen to an all-time low of 450,000 as tight credit markets have sunk demand and discourage new construction.
[B]Will The EUR/USD Break 1.3000? Join us in EURUSD Forum
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Forex Trading Weekly Forecast - 03.16.09
[I]To discuss this report contact John Rivera Currency Analyst:[/I] [email protected]
