Forex Trading News March 2009

Rising risk appetite send the euro/ dollar above 1.3300 while the single currency recovered, after bearish fundamental figures pressured the euro slightly. The jobless rate rose to 8.1% as a result of the German unemployment that increased by 69,000 for the fifth month. The weak labor figures caused the change in sentiment, which was speeded up by the eurozone CPI forecast dropping to a record low. The fear for deflation will increase due to the outlook for consumer prices in March which fell from 1.2% to 0.6%. However, this does not guarantee that the ECB will take additional quantitative easing actions.

Friday traders speculated that the assets of emerging markets will become more popular, as the recession weakens and as a result of these speculations the Malaysian ringgit reached a monthly record high. Currencies such as the Korea’s won and the Malaysia’s ringgit are setting one of the longest periods of gaining in their present history, as emerging equity markets maintain their growth. The demand for export and more risky assets is increasing due to the stimulus measures for and from the major world economies; China, the US and Europe.

The final data of the last quarter of 2008 have been revised from -1.5% to -1.6%, which is a record quarter low since 1980. It’s difficult for the economy to grow due to exports falling by 3.9% and as a result of a drop in household spending by 1.0%. During last night’s session the GBP/USD fell 300 pips, reaching a level below 1.4300.

China wants to establish a super national currency, which targets on the exchange reserves worldwide. On one hand this implicates China’s vision that the dollar will suffer from devaluation on the long-tem, while on the other hand it makes clear that China will be important in the formation of the new financial constitution, which will operate worldwide.

The Euro suffered from a gloomy trade balance report which proved the deficit to grow from 1.7 billion to 10.5 billion, while the euro lost some of its earlier gains. The report demonstrated a major fall in exports with a five year low of 4% in US demand as the most important evidence of this decrease. Germany has the largest eurozone economy and showed for the 11th straight month a 7.8% fall in construction activities. Before falling to 1.3621, risk appetite rose due to the prospects that the US administration will announce details of their banking plan today, while the euro reached a 1.3738 level.

At the start of the European trade session the euro had reached a 1.3728 level during the overnight trading, while earlier it had reached an intraday low of 1.3615. In February eurozone’s industrial production dropped by 17.3%; a record low versus last year. For the fifth straight month activity fell due to a decline in capital goods by 6.0% which resulted in a monthly fall of 3.5%. The single currency dropped by 50 bps following the release, which is a sign that the gloomy fundamental data influence the euro.

This Monday the Japanese yen, the Swiss franc and the US dollar proved to be low-yielding and showed the poorest results among the major currencies while the higher-yielding currencies and stocks were boosted by an increase in risk appetite. The G-20 communiqué improved confidence as the member countries are making progress in realizing a plan which should boost the financial system and recover global growth. Indeed, US Treasury Secretary Geithner promised to publish more detailed data of the plan that should support banks in solving the ‘toxic assets problem’, which adds more uncertainty to the financial markets. According to FED Chairman Bernanke, the US recession may end this year and the depreciation risk has already been eliminated.

The global recession increased the attractiveness of less risky currencies and declined the demand for more risky currencies as the Japanese yen gained versus the US dollar for the third consecutive day. China’s customs bureau’s report proved that its trade surplus decreased to a record low since February 2006.

Stock markets seemed to recover after last week's risk aversion while during last night's trading the euro gained by more than 100bps. It looks like prices are stabilizing, which is proved by the increase in German consumer prices; the first one since July 2008. Still, the rest of the economic docket shows that the European recession is deteriorating. The German trade balance grew to 8.5 billion from 7.3 billion, which was a result of the fourth consecutive month of weakness, proved by the drop in exports by 4.4%. French manufacturing dropped in January by 4.1%, which resulted in an annualized decrease of 16.5%. This can be explained by a 15% fall in consumer goods.

Expectations that HSBC, England’s major bank, will face difficulties in managing the US bad loans caused the pound sterling to fall versus all major currencies today. The UK FTSE 100 benchmark index as well as the Japanese Nikkei 225 fell during the early European and late Asian equity market sessions while HSBC dropped by 18 % today. More help from the government will be necessary to recover UK’s financial system.

Investors expect the labor reports, which will be released today, to show deterioration in the US recession as the dollar fell against all major currencies, after yesterday’s positive results. The dollar may be boosted by a less negative nonfarm payrolls report but may result in the dollar selling and turn into a real rally if the report disappoints.

Indian companies converted to dollars in order to finance the imported products which resulted in a decline of the Indian rupee against the dollar, approaching a record low-level. The Indian economy is confronted with more major risks than the other upcoming countries. The rupee dropped as global markets show a rather modest risk-aversion level today.

The Reserve Bank of Australia decided to maintain the policy interest rate which is surprisingly after the recent, rigorous rate cuts. The unchanged rate resulted in an increase of the Australian dollar against all major currencies today, which could be sustainable and last for several weeks.

Today the developed Euro zone countries announced that the Eastern European banks will not get any financial support as the euro fell considerably versus the US dollar and against the Japanese yen. Stock markets dropped worldwide and risk appetite decreased while analysts believe that a cooperative effort is the only way to solve the banking crisis.