The Euro has regained its footing after coming under slight pressure on bearish fundamental data as improving risk appetite would send the euro/dollar above 1.3300. German unemployment increased for a fifth month by 69,000, which pushed the jobless rate to 8.1%.
[B][U]Talking Points[/U]
• Japanese Yen: Third Stimulus Plan Proposed
• Pound: Service Sector Falls To Record Low
• Euro: Inflation Outlook Drops To Record Low
• US Dollar: Consumer Confidence, Chicago PMI On Tap
[U]
Euro Finds Support Despite Weak German Labor Data And Record Low Inflation Expectations[/U][/B]
The Euro has regained its footing after coming under slight pressure on bearish fundamental data as improving risk appetite would send the euro/dollar above 1.3300. German unemployment increased for a fifth month by 69,000, which pushed the jobless rate to 8.1%. The weak labor data started the reversal in sentiment which was accelerated by the Euro-zone CPI-estimate falling to its lowest on record. The outlook for consumer prices in March dropped to 0.6% from 1.2% which will raise deflation concerns, but may not increase the possibility of future quantitative easing measures from the ECB.
Despite consumer prices continuing to fall below its 2% target, the ECB maintains that it sees no risk of deflation throughout the Euro-zone region. President Trichet stated yesterday that “We have to remain permanently alert but at the moment of speaking we don’t see that risk substantiated.” Calls have started to grow louder for the central bank to become more aggressive in its efforts as European leaders continue to become concerned that they are falling behind the curve as the U.S., U.K. and Japan have all embarked on quantitative easing after bringing their benchmarks rates to near zero. The upcoming G-20 meeting may see world leaders add to those requests for action. Until the ECB changes its stance and the Euro remains one of the higher yielding currencies, it will continue to find support on improving risk appetite. However, if the downside risks to inflation and growth continue then we may see a sharp drop as investors steer clear of the deteriorating economy.
Sterling has seen choppy price action throughout overnight trading as the GBP/USD has tested its intraday high of 1.4340 twice while continuing to find support at 1.4260. The 50-Day SMA at 1.4270 appears to be providing support for the pair as it looks to end its four day slide which has seen it lose over 500 pips. The pound weakness has been built upon the declining outlook for the U.K. economy which took another blow today as the index of services fell to -1.3%, which was the lowest since record keeping began in 1995. Consumer confidence rising to its highest level since May to -30 from -35 reflects the broader increase in optimism and may be a supportive factor for the pound. If technical support holds then a re-test of 1.4500 is a possibility.
The dollar has started to give back its gains from yesterday as traders look beyond the automakers troubles and focus on the potential of the upcoming G-20 meeting. Comments from U.S. Treasury Secretary Tim Geithner that the members leaders were united on the need for future regulatory measures and were in agreement on a broad based solution has boosted confidence. Overall sentiment is on the rise on the back of the numerous stimulus plans globally which includes a potential third Japanese effort. Indeed, Japanese Prime Minister Taro Aso formally requested a new package, which is expected to include at least ¥10 trillion ($102.83 billion) in spending and tax cuts. The U.S. consumer confidence reading today is expected to reflect this increasing optimism as economists are forecasting a rise to 28.0 from 25.0. Other releases due to cross the wires are forecasted to be flat with the S&P Case-Schiller home price index expected to remain at -18.6% and Chicago PMI to slightly improve to 34.3 from 34.2. The increasing confidence should be a weighing factor for the dollar as safe-haven flows leave U.S. Treasury’s for riskier assets abroad.
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Forex Trading Weekly Forecast - 03.30.09[I]
To discuss this report contact John Rivera Currency Analyst: [/I][email protected]
