The euro has traded heavy since reaching an intraday high if 1.3348 on the back of slumping German retail sales and an uninspiring improvement in the Euro-zone Sentix investor sentiment reading. Unemployment in Germany has risen to its highest level in over a year at 7.6% and the weak labor market weighed on consumer consumption which declined by 1.0% in March versus expectations of a 0.2% gain.
[U][B]Talking Points[/B][/U][B]
• Japanese Yen: Consolidating Near 99.50
• Pound: Under Pressure During Holiday Trading
• Euro: Weakness On Slumping German Retail Sales
• US Dollar: Pending Home Sales On Tap [/B]
[U]Euro Reverses On Weak German Retail Sales And Disappointing Investor Sentiment, Will ECB Cut Rates?[/U]
The euro has traded heavy since reaching an intraday high if 1.3348 on the back of slumping German retail sales and an uninspiring improvement in the Euro-zone Sentix investor sentiment reading. Unemployment in Germany has risen to its highest level in over a year at 7.6% and the weak labor market weighed on consumer consumption which declined by 1.0% in March versus expectations of a 0.2% gain. Meanwhile, the Euro-zone Sentix investor confidence reading slightly improved to -34.3 from -35.3 but was significantly below estimates of -28.0. Traders have become more pessimistic about the current state of affairs which is offsetting the improving outlook for the future. On a positive note the final reading for the Euro- zone PMI reading was revised higher to 36.8 from 36.7, as it improved for a second month.
It is clear that markets are concerned that the ECB is behind the curve with their monetary policy which could prolong the current recession. Green shoots in the U.S. and China have started to improve the global growth outlook which is driving the increasing optimism. However, the central bank still appears reluctant to resort to non-standard measures as several members have voiced concerns over the potential risks of such a course of action. The committee is expected to cut rates by 25bps at Thursday policy meeting and given the European commission’s current forecasts for GDP to contrast by 4.0% in 2009 and 0.1% in 2010, they may be forced to expand the scope of their actions. Indeed, Economic and Monetary Affairs Commissioner Joaquin Almunia said "The European economy is in the midst of its deepest and most widespread recession in the post-war era.”
The pound has come under considerable pressure falling below 1.4870 after reaching as high as 1.4982 despite Holiday trading in the U.K… The weakness has come on the heels of the disappointing European data and the failure of the pair to break above the 1.500 price level could be a sign of more weakness to come. The BoE will also announce their rate decision on Thursday but unlike the ECB is forecasted to keep their benchmark rate at the record low of 0.50%. The central bank has already embarked on quantitative easing measures which have started to impact credit markets and is expected to start to have an impact on the economy in the coming months. Their purchase program of government debt is expected to take another month to complete and until then the MPC should stand pat and asses its impact. The 20-Day SMA at 1.4751 could provide support and limit downside risk for the pair.
The dollar has started to regain its footing on the weak European data which helped reverse earlier losses built on an increase in the Chinese PMI reading to 53.5 from 52.4. The improvement in manufacturing activity helped boost optimism for the global economy which could be picked up by U.S. markets and continue greenback losses. However, the U.S. fundamental calendar will present event risk in the form of U.S. pending home sales which are forecasted to remain flat after a 2.1% increase in February. The lack of improvement in the housing sector could give investors pause as there are expectations that we could see continued weakness in the sector as mounting job losses stretch Americans and increase the potential for more foreclosures. Speculation that GM will follow Chrysler into bankruptcy could be also weigh on investor sentiment and generate safe-have flows into the dollar.
[B]Will The EUR/USD Break 1.3000? Join us in Forum[/B]
[B]Related Articles: [/B]
Forex Trading Weekly Forecast - 05.04.09
[I]To discuss this report contact John Rivera Currency Analyst: [/I][email protected]
