The Euro fell to an intraday low of 1.2732 as equity markets started trading lower on further contraction in the Japanese growth report which reignited global growth concerns. The ECB in its March monthly report predicted that inflation will remain “well below” its 2% target for the next two years.
[B][U]Talking Points[/U]
• Japanese Yen: Finding Support Despite Further Contraction In GDP
• Pound: Consumer Inflation Expectations Fall To Lowest Since 2005
• Euro: Producer Prices Unexpectedly Fall
• US Dollar: Advance Retail Sales On Tap
[U]Euro Slips As Global Recession Fears Mount, Yen Rises Despite Further Contraction In GDP [/U][/B]
The Euro fell to an intraday low of 1.2732 as equity markets started trading lower on further contraction in the Japanese growth report which reignited global growth concerns. The ECB in its March monthly report predicted that inflation will remain “well below” its 2% target for the next two years. This was reinforced by factory gate prices unexpectedly falling 0.5% in January on an annualized basis led by the 0.8% drop during the month. Energy costs fell another 1.5% in the month as falling commodity costs remain a drag on inflation. The Euro/Dollar broke above its 20-day SMA yesterday and until it falls back below the technical level at 1.2693, we may see more upside potential with a test of 1.300 a possibility.
The Yen has gained over 300 bps against the dollar in the past two days despite the final 4Q GDP figures showing further contraction than the initial readings. Japanese growth declined by 13.4% which was the lowest since 1974 led by a sharp decline in exports and business spending. Despite the figures reigniting risk aversion the Yen continued to gain against the dollar which could be a sign that the currency is regaining its safe-haven status. The USD/JPY momentum has been slowed by the 20-Day SMA at 96.21which could lead to a retrace. However, a clear break below the technical level will leave the 38.2% Fibo extension of the 87.13- 99.69 at 94.94 as the next support level.
The Pound fell to 1.3727as it gave back most of yesterday’s gains as it was sunk by the dimming global outlook. Sterling had reached as high as 1.3925 as the BoE’s initial quantitative easing efforts were successful. The central bank’s entry into bonds markets drove Gilt prices higher and significantly lowered yields which should help spark increased borrowing. Tight lending standards have sunk the housing market and choked the economy. Meanwhile, consumer inflation expectations for the next twelve months fell to 2.1% from 2.8% for the quarter ending in February. It was the lowest level since 2005 and inline with the central bank’s expectations that consumer prices will fall below its 2% target. Since the BoE has started to print money inflation expectations will become a concern as the upside risks to price pressure may increase as the pump money into the system. If we see 1.3700 hold as support then there may be upside potential for the pair with a test of the 20-day SMA at 1.4166. However, further weakness could lead to a test of 1/23 low of 1.3503.
The dollar has been receiving support overnight as global recession concerns have sparked an increase in risk aversion. If we see U.S. equity markets reverse recent gains then dollar bullish sentiment may continue. The U.S. advance retail sales is expected to show demand fell by 0.5% after January’s unexpected 1.0% gain, as a weak labor market weighed on demand. Indeed, the expected increase in initial jobless claims to 644,000 demonstrates that the job losses continue to mount is expected to negatively impact domestic growth over the near-term. This could lower earnings expectations and send equity traders back to the sidelines today. However, a consecutive month of improving consumer consumption may reignite risk appetite which could lead to dollar weakness.
[B]Will The EUR/USD Break 1.2500? Join us in EURUSD Forum
Related Articles: [/B]
Dollar Rally Stalls As Traders Question Safety In Deepening Recession
Euro/Sterling Approaching Key Fib Zone; Sell @0.9355
[I]To discuss this report contact John Rivera Currency Analyst:[/I] [EMAIL=“[email protected]”][email protected]
[/EMAIL]