The Euro unexpectedly found support following a lower than expected German IFO report which help reverse earlier losses that saw the EUR/USD fall to as low as 1.3418. Business sentiment dropped to a 26-year low of 81.5 from 82.6 as the current assessment component fell 1.6 points.
[B][U]Talking Points[/U]
• Japanese Yen: Exports Plunge 49.4%
• Pound: Deflation Concerns Weighing on Sterling
• Euro: German IFO Falls To 26 Year Low
• US Dollar: Durable Goods Orders On Tap
[U]Euro Reverses Losses Despite Drop In German IFO, Will Weakness Resume As ECB Talks QE?[/U][/B]
The Euro unexpectedly found support following a lower than expected German IFO report which help reverse earlier losses that saw the EUR/USD fall to as low as 1.3418. Business sentiment dropped to a 26-year low of 81.5 from 82.6 as the current assessment component fell 1.6 points. Currency traders may have been inspired by the third straight improvement in the expectations component which rose to 81.6 following a 80.9 print in February. The euro/dollar set a fresh intraday high at 1.3512 before finding resistance.
The continued deterioration of growth in the Euro-zone has some ECB members changing their tune concerning quantitative easing. Yesterday, Vice President Lucas Papademos said “This is an option to be considered,” and Jose Manuel Gonzalez-Paramo stated that “We don’t exclude any possible measures”. The central bank has already signaled that they may cut rates again at their next policy meeting and if markets start to price in the possibility of quantitative easing, then we could see the single currency look to trade lower going forward.
The Pound has steadily traded lower throughout the overnight session reaching as low as 1.4578. Sterling has traded heavy since BoE governor King dismissed the higher than expected consumer price report and held to the central bank’s forecast for inflation to undershoot its 2% target. The remarks left the door open for more quantitative easing efforts which may be a weighing factor on the pound going forward. Indeed, outgoing MPC member David Blanchflower stated that “An accommodative monetary policy stance is likely for the foreseeable future,” which may limit sterling’s upside potential over the near-term. The GBP/USD has fallen back below the 100-Day SMA at 1.4621 which leaves open the possibility that yesterday’s move higher was a false breakout and opens the door for more cable weakness.
The dollar has started to find support as concerns over global growth creep back into markets. Japanese exports plunging 49.4% from a year ago reflects the impact of the credit crisis on global demand. Today’s the U.S. Durable Goods Orders report is expected to paint a similar picture as economists are forecasting that demand fell by another 2.5% following the 4.5% drop in January. It would be the seventh straight month that orders for long lasting items has fallen, which is a direct reflection of the consumer s outlook. Another dour reading could continue the risk aversion that dominated equity markets yesterday which could add to greenback buying. However, a rebound in demand and a corresponding improvement in the upcoming new home sales report could fuel risk appetite and reverse the dollar’s recent gains. President Obama in his press conference yesterday touted the greenback’s strength and opposed China’s idea of a global currency which could also add support.
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Trading the US Durable Goods Orders Report Using the EUR/USD
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To discuss this report contact John Rivera Currency Analyst: [/I][email protected]
