USD - USD Strength Not Likely to Return this Week
The U.S. Dollar weakened during yesterday's trading session, correcting the sharp gains against the EUR and GBP seen earlier this week. This occurred as investors questioned whether the economy had improved enough to justify talk of higher U.S. interest rates by year end. By yesterday's close, the USD fell sharply against the EUR, pushing the oft-traded currency pair to 1.4060. The dollar experienced similar behavior against the GBP and closed at 1.6310.
The dollar, which fell sharply in May, rallied late last week after data showed U.S. employers cut fewer than expected jobs last month, but that move fizzled yesterday as analysts warned the U.S. economy still faced a rising jobless rate.
There was a quiet day of news from the U.S. as there were no major economic data releases on the calendar yesterday. However, U.S Treasury Secretary Geithner spoke about the state of the U.S. economy. He pointed out specifically that Barack Obama will unveil a new model for regulation of financial institutions next week which might affect the dollar. Overall, investors remained wary of making big bets in favor of the dollar these days, especially as they re-thought the chances of a Fed rate increase later this year.
Looking ahead to today, there are several important news releases coming out of the U.S. These include the Trade Balance and Crude Oil inventories at 12.30 GMT and 14:30 GMT, respectively. Better-than-expected results may help the Dollar recover some of yesterday's losses against some of its crosses such as the EUR and GBP. On the other hand, if the results turn out to be lower than forecast, then the Dollar may record a fairly bearish session in today's trading. Traders should pay close attention to the market as there is an opportunity for traders to capitalize on the fluctuations which are likely to follow these releases.
EUR - EUR Rises on Weaker Greenback
The EUR finished yesterday's trading session with mixed results versus the major currencies. The 16-nation currency extended gains versus the U.S. Dollar on Tuesday, to trade above $1.41 amid a broad sell-off in the greenback. The EUR experienced similar behavior against the JPY as the pair rose from 135.96 to 137.12 by days end. The EUR did see bearishness as well as it lost over 60 pips against the GPB and closed at 0.8620.
A leading indicator released yesterday was the German Industrial Production report. Germany holds the largest and strongest economy in the Euro-Zone, and thus the relevant publications from this economy usually have a hefty impact over the EUR. As a result, Germany's economy may be slow to recover from a record contraction in the first quarter as companies trim jobs and the global slump curbs foreign sales.
German exports fell more than economists expected in April and European Central Bank (ECB) Governing Council member Erkki Liikannen said yesterday that there is no quick recovery in sight for the world economy. Germany, a leading global exporter, has been mauled by bearish global demand in the past year, and notoriously thrifty German consumers have done little to compensate by hitting the stores.
Looking ahead to today, the most important economic indicator scheduled to be released from the Euro-Zone is the French Industrial Production at 6:45 GMT. Analysts are forecasting this figure to slightly increase from its previous reading. Traders will be paying close attention to today's announcement as a stronger than expected result may boost the EUR in the short-term. Traders are also advised to follow the Manufacturing Production figures coming out of Britain at 8:30 GMT, and the Trade Balance figures coming out of the U.S. at 12:30 GMT as these results may set the EUR's main currency crosses for the day.
JPY - Yen Looks to Global Economic Recovery
The Japanese Yen completed yesterday's trading session with mixed results versus the major currencies. The JPY fell against the EUR yesterday, pushing the oft-traded currency pair to 137.12. The JPY experienced similar behavior against the GBP as the pair closed at 158.70 by day's end. The Japanese Yen did see some bullishness as well as it gained over 100 pips against the USD to close at 97.20.
Japan's deepest recession is easing now, as Japan's exports have received a boost from public spending in China and other countries, while Prime Minister Taro Aso's record stimulus spending on tax incentives and cash handouts helped consumer sentiment advance to a 10-month high in April. Even as overseas demand shows signs of stabilizing, exports and factory output have fallen by more than a third since the global financial crisis deepened in September, putting pressure on companies to cut jobs and investments.
Crude Oil - Oil Prices Hit 7-Month High
Crude Oil prices rose for a second day on increasing optimism that the world economy is emerging from recession and fuel consumption begins to recover. Crude Oil ended above $70 a barrel for the first time in seven months yesterday as the dollar weakened and traders positioned themselves ahead of the crude oil inventory data which will start to be rolled out later in the day.
Oil prices have more than doubled since February, rising with equities on signs of a rebound in the economy and expectations of fuel demand will follow higher. As a result, a release of a string of positive economic figures could help continue its bullishness. Therefore, traders are advised now to make some profits as the price of Crude Oil is set to remain volatile in the short-medium term.
Article Source - Crude Oil Prices Surprise with Bullishness as USD Weakens
Key Overnight Developments
• Australian Consumer Confidence Rises Most in 22 Years, Says Westpac
• New Zealand’s Trading Terms Index Tumbles on Weak Export Demand
The Euro traded sideways in Asian hours, oscillating in a 40-pip band above 1.4050 to the US Dollar. The British Pound followed suit with prices confined to a narrow 0.3% band above 1.63.
Asia Session Highlights
Australian Consumer Confidence surged 12.7% in June, the largest monthly gain in over 22 years, according to Westpac Banking Corp. More notably still, the metric’s value topped the “boom-bust” 100 level, suggesting optimists outnumber pessimists among the 1200 consumers polled for the survey for the first time since January 2008. Westpac’s chief economist Bill Evans called the result “truly remarkable” but qualified that “this surge in confidence can be seen as a delayed response to the significant stimulus over the last nine months.” Indeed, the forces behind June’s result have been revealed since traders learned that GDP unexpectedly grew in the first quarter, boosted by the government’s generous stimulus efforts. The real question going forward will be whether Australia is able to sustain positive momentum after the flow of stimulus cash dries up. Evans seems to share our cautious assessment, saying “the positive confidence reaction in June is probably premature [considering] domestic spending fell 1 percent [in the first quarter despite the positive headline figure], the sharpest fall since the December quarter of 2000.” A survey of economists conducted by Bloomberg suggests the economy will shrink for the remainder of 2009.
New Zealand’s Trading Terms Index fell -3.0% in the first quarter, the most in nearly 7 years. Import prices fell 5.4%, while those for exports declined 8.2%. The New Zealand dollar ended the three months to March moderately higher (1.08%) against a trade-weighted basket of top currencies, suggesting the fallout owes to sluggish demand for the country’s exports. Exports account for about 30% of the antipodean nation’s total output, so continued weakness here is likely to stall any prospects for a robust economic recovery in the near term. Economists expect the Reserve Bank of New Zealand will keep interest rates unchanged at 2.50% later this week but recent commentary from bank officials suggests there is ample room for a surprise reduction.
Euro Session: What to Expect
The final revision of Germany’s Consumer Price Index is set to confirm that inflation fell -0.1% in May to bring the annual pace of price growth to a standstill for the first time in at least 17 years. The adjusted version of the metric using a harmonized EU methodology is set to show an even more ominous result, confirming that the annual pace of German inflation shrank -0.1%, the first negative outcome since the creation of the Euro. The onset of deflation in the Euro Zone’s largest economy is a scary prospect for the single currency: if expectations of falling prices become entrenched, Germany may find itself treading water for longer than expected as consumers and businesses wait for the best possible bargain and perpetually hold off on spending and investment; the massive weigh of Germany as driver of economic growth for the Euro Zone as whole means that the bloc’s performance will remain subdued as well, pushing expectations for higher interest rates farther out into the future to hurt the European unit against UK and US counterparts. Indeed, overnight index swaps show traders are pricing in expectations that the Fed and the Bank of England will deliver 100 basis points in rate hikes over the next 12 months while the European Central Bank lags behind with just 61bps in the same period.
Turning to the UK, the Trade Balance is expected to narrow to 2.4 billion pounds in April from 2.5 billion in the previous month. Considering export volumes have been trending sharply lower, down 9.7% to date since peaking in July last year as the global economic downturn crushed overseas sales, it stands to reason that absent a recovery in foreign demand (an unlikely scenario considering the UK’s top trading partners are mired in deep recession) any improvement in the headline figure would come from lackluster import readings. Another drop in Industrial Production fits very neatly into this picture: output is set to shrink at an annual pace of -12.4% for the second consecutive month in April, the most in at least 33 years, largely on weak exports. This speaks directly to the current spending client, revealing that consumers remain on the defensive despite a stronger Pound that would have made foreign-made goods comparatively cheaper. As with most advanced countries, private consumption is the largest component of overall UK economic growth and continued weakness here is likely to keep a lid on any moves towards a sustainable from the current downturn. Indeed, the latest forecasts call for the economy to continue to shrink at least through the first quarter of next year.
Written by Ilya Spivak, Currency Analyst
Article Source - Euro Threatened as German Consumer Prices Point to Deflation (Euro Open)
What is Forex?
The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
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