The Euro rallied against the U.S. dollar for the third day to reach a high of1.3584 as market sentiment improved however, deteriorating fundamentals in the region weighed on the single-currency as the economic calendar continued to reinforce a weakening outlook for growth and inflation.
[B][U]Talking Points[/U]
• Japanese Yen: Breaks 101.00 to Reach Five-Month High
• Pound: New Car Registration Drops 30.5%
• Euro: Producer Prices Drop 4.0% from Last Year
• US Dollar: Fed Governor Warsh to Speak
[U]Euro Pares Gains Following the Drop in Inflation, U.S. Dollar to Face Risk Trends as Market Sentiment Improves[/U][/B]
The Euro rallied against the U.S. dollar for the third day to reach a high of1.3584 as market sentiment improved however, deteriorating fundamentals in the region weighed on the single-currency as the economic calendar continued to reinforce a weakening outlook for growth and inflation. The Sentix investor confidence survey for the Euro-Zone rebounded from a record low reading of -42.7 to -35.3 in April, which was much higher than the -40.7 forecast held by economists, while retail spending in the region dropped 0.6% in February as households face a weakening labor. Moreover, producer prices fell 0.5% in February, while the annualized rate dropped another 4.0% from the previous year, which is the biggest decline since April 1999. Falling price pressures paired with fading demands from home and abroad continues to reinforce fears of a deepening recession in the euro-region, and as the ECB maintains a 2% target for price growth, the central bank may continue to ease policy in the month ahead as the risks for deflation intensify.
Furthermore, the British pound strengthened against the greenback for the fifth day to break above 1.4900, and the pair may continue to push higher over the next 24 hours of trading as market participants move into higher risk/reward investments. Meanwhile, the economic docket for the U.K. showed that new car registrations plunged 30.5% from the previous year after falling 21.9% in the previous month, and the outlook for private-spending remains bleak as households continue to face tightening credit conditions paired with fading demands for employment. Nevertheless, as the Bank of England is widely expected to hold the benchmark interest rate at the record-low this week in an effort to mitigate the downside risks for growth and inflation, and the board may step up its purchases of Gilts to jump-start the economy as the region faces its worst recession since World War II.
The U.S. dollar strengthened to a five-month high against the Japanese yen as the pair surged above 101.00 for the first time since October, and the exchange rate is likely to push higher as investors raise demands for carry trades. However, the economic docket for Japan continued to foreshadow a deepening downturn in the world economy as the leading index slipped to a record-low of 75.2 in February from 77.2 in the previous month, and as the fundamental outlook for the world’s second largest economy continues to deteriorate at a rapid pace, the marked slowdown in global trade could weigh on the markets as economic activity falters.
As the U.S. economic calendar lacks market-moving potential, risk trends are likely to dictate price action in the currency markets, and the rise in market sentiment may continue to weigh on the dollar as investors move into higher-yielding assets. Nevertheless, Fed Governor Kevin Warsh is schedule to speak at the Council of Institutional Investors in Washington at 17:00 GMT, and comments from the board member is likely to reinforce a dour outlook for growth and inflation as the economy faces its worst economic downturn in over half a century. Meanwhile, U.S. equity futures foreshadows a higher open for the market today, and the rise in confidence is likely to weigh on the reserve currency as investors continue to boost their appetite for higher risk/reward investments.
[B]Will The EUR/USD Break 1.4000? Join us in Forum
Related Articles:[/B]
Forex Trading Weekly Forecast - 04.06.09
[I]To discuss this report contact David Song Currency Analyst: <[email protected]>
[/I]