Trade balance report frustrates Euro and Details banking plan expected soon

03-23-2009 14:52

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.

ECB seems to lower rate near to zero

Trichet, head of the European Central Bank (ECB), said it isn’t necessary for Europe to increase spending despite US government’s demands to boost the global economy. On the other hand, Trichet seems to consider another rate cut, which earlier stimulated bullish sentiment. In the meantime, traders were optimistic as the ECB appears to follow other major nations, like Japan, the UK and the US, concerning a rate level near to zero. This could influence the recession in a positive way and could stimulate growth to return in 2010, which is forecasted by the ECB. Bullish euro sentiment could return if the US trading session continues to see risk appetite.

Geithner to unveil bank bailout details

Markets are already calculating the US government’s Public Private Investment Plan (PPIP) as the dollar faces more pressure due to growing risk appetite. It is to be expected that US treasury Tim Geithner will unveil facts of the plan which will increase the $700 billion bailout plan that contains subsidies for private investors in order to stimulate them to cooperate in the elimination of toxic banks assets. The plan targets on obtaining from the private sector $500 billion - $1 trillion dollars of the assets that have clogged the banking system. Equities could rally and frustrate the dollar if the markets appreciate the plan while in the meantime treasuries lose money as a result of yield seeking. According to economists the existing home sales report will show a 4.45 million fall in February, which would be a record low. A gloomy report could reduce positivism and could prove investors that the housing crisis continues. The dollar could suffer from an increasing bullish sentiment which could be the result of a swiftly recover in purchases.