Forex Trading News April 2009

The Euro reached a 1.3388 level before the German unemployment report proved another 58.000 job losses and resulted the unemployment rate to rise to 8.3%; the highest level since December 2007. Bearish sentiment increased by the unchanged CPI-estimate at 0.6% as a 0.7% rise in inflation was expected. Although unchanged prices weaken deflation concerns, markets were willing to take away these concerns if price pressures would continue to increase. For that reason, it is likely that the European Central Bank could initiate non-standard measures at their next policy meeting.

Former UK Treasury Adviser Roger Bootle declared that it is possible that the national economy will face a contraction as house prices decrease. On this comment the Pound fell and started this week rather gloomy while the Japanese Yen regained its safe-haven status as the potential ‘swine flu’ pandemic increases risk aversion.

The Sterling has seen volatile price action following frustrating results concerning the UK GDP and retail sales reports as it dropped to 1.4600 before finding support. The Gross Domestic Product (GDP) declined by 1.9%; the third consecutive quarter of declines and the largest since 1979. The service sector covers 70% of the GDP and contracted by 1.2%, while manufacturing production dropped by 6.2%. Retail sales were expected to fall by 0.3% but rose by 0.3% and reduced the gloomy outlook.

The Pound dropped almost 50 pips as a result of releases concerning the BoE minutes, budget data and UK unemployment. Economist expected jobless claims to rise by 116,000 but the data proved an increase of 73,700. Still, the unemployment rate went up to 6.7%; the highest level since 1997. The UK budget deficit rose to 90 billion pounds, in comparison with last year’s 34.6 billion, and increased the impact of the deteriorating labor market. The deficit will result in future tax raises after emerging from the present recession which reduces long-term growth outlooks for the UK. The GBP/ USD dropped from 1.4676 to 1.4525 before finding support.

The German ZEW release exceeded expectations, which boosted sentiment for the first time in two years, as the Euro rose by 45 pips. The EUR/ USD went up to 1.2991 and extended its earlier gains on increasing risk appetite. German producer prices dropped in March by 0.7% and resulted in a negative annualized reading for the first time in five years. Fear of deflation will increase due to the 0.5% downfall through which it’s more likely that the European Central Bank decides on quantitative easing at the following policy meeting.

Risk aversion has been boosted due to a week full of event risk, while during last night’s trading session the Pound fell over 200 pips. The employment and UK CPI data will be published in the following two days and these figures will probably prove the point of view of the Bank of England that inflation will undershoot their 2% target and that the economy will continue to slow down until the end of this year. According to the Rightmove data house prices went up for a third consecutive month by 1.8%, which added more optimism to the economy.

The Euro fell to 1.3056; a month low, after dovish remarks by Jean-Claude Trichet, president of the European Central Bank. He confirmed the central bank’s vision that extra non-standard actions and additional easing are necessary. The comments proved the outlook by the market participants that a 25 bps rate cut would be discussed during their following two policy gatherings. The eurozone trade balance deficit contracted from -10.9 billion to -2 billion as imports dropped at faster pace than exports. The present recession could deteriorate further as demand from its major trading partners declines.

After the publication of the Chinese Gross Domestic Product (GDP) report the euro has fallen gradually, eliminating yesterday’s gains on the growing US stock markets. China´s economic growth dropped to its slowest tempo in almost ten years at 6.1% as a result of further decreasing exports. The world’s third biggest economy has been a source of global growth and declining demand for its products reflects the current weakness of the global economy. Before the EUR/ USD dropped to 1.3130 and found support, it had reached a 1.3270 level. The eurozone industrial production fell in February by 18.4%; a record low, which appended to bearish sentiment due to a 4.3% fall in durable goods. The eurozone CPI of March was proved at 0.6% which will continue deflation worries since it is under the central bank’s target of 2%.

The Goldman Sachs reports exceeded expectations and boosted optimism, which was frustrated by the rising global recession concerns and pressured the euro. During the European trading sessions the EUR/ USD dropped to 1.3266 after it found resistance at the 20-day SMA at 1.3392. The French present account proved that the deficit contracted to 2.2 billion. Last Friday Nout Wellink said that the central bank may reduce its benchmark rate further. The single currency could suffer downside risks considering the outlook of an increase in non-standard actions and the prospects of additional easing. The 100-Day SMA at 1.3188 will be an important level to monitor and a break under support may make the pair vulnerable to a 1.3000 fall; the 50-Day SMA.

During last night’s session the euro reached a 1.3216 level as it began to obtain a bid tone after it reached a low of 1.3126 during the Asian trading session. The single currency has remained its high-yielding status and continued to find support as a result of rising optimism, although the European Central Bank reduced the benchmark rate to 1.25% at the previous policy meeting. The central bank would leave rates unchanged at the next meeting but would think of non-standard actions according to president Trichet. The situation of the European economy continues to worse through which speculations of more measures by the committee are rising and could influence the pair. Still, the 100-Day SMA at 1.3184 keeps adding technical support to the EUR/ USD.

The pound reached an intraday high of 1.4741 and dropped sharply ahead of the BoE interest decision and the UK Producer Price Index (PPI) data. In spite of the outlook that the central bank will remain its rates at 0.50%, the GBP/ USD fell over 100 pips. The UK PPI slowed to 2.0%, which is the slowest pace in 20 months and proved the central bank’s point of view that inflation will frustrate their 2% target rate. For that reason worries for additional quantitative easing grow as the Bank of England seems to ease credit conditions and head off deflationary circumstances. The pound could remain weak if the MPC indicates more measures to improve liquidity on the markets or state that their present attempts are not sufficient.

The euro dropped to 1.3147 as a result of the gloomy report from aluminum manufacturer Alcoa, which proved decreasing worldwide demand and declining commodity prices as the cause for their $0.59 loss. The eurozone fundamentals stimulated pessimism, while for the fifth month German exports dropped by 0.7%. Still, external demand exceeded expectations for a 3.3% fall. The weakening internal demand was proved by the 4.2% decrease in imports and resulted in an increasing trade balance from 7.0 billion to 8.7 billion. In February German industrial orders dropped for a sixth month by 3.5%, reaching an annual record low of 3.82%. The 3.7% fall in orders from the eurozone together with the 5.7% fall in internal demand, underlines the contraction of the eurozone economy.

The Japanese yen went up against all main currencies today as a result of yesterday’s fall in equity markets and due to the prospects that today’s session will remain bearish. Following the decline in risk appetite, the euro fell versus the US dollar and dropped below 1.3300 after the final Gross Domestic Product (GDP) reading for the last quarter implicated that the financial crisis in Europe may deteriorate.

The sterling reached a seven week high of 1.4831 and rallied almost 200 pips, while the service PMI indicator is better than expected, which implicates that economic fundamentals are improving. The service sector covers 70% of UK’s GDP and increased from 43.5 to 45.5; the fourth consecutive month of progress. Buying Gilts in the market place could result in a considerable recovery of UK’s economy, while consumer lending will be stimulated by easing credit markets. Nevertheless, the pound lost some if its gains today due to the outlook that the U.S. employment report, which will be published soon, will turn out gloomy.