Euro rises on weak investor sentiment and gloomy German retail sales

05-04-2009 15:01

The Euro reached an intraday high of 1.3348 as the Euro-zone Sentix investor sentiment reading and German retail sales turned out disappointing. German unemployment rose to 7.6%; the highest level over a year, while the poor labor market affected consumer consumption which was expected to increase by 0.2% but dropped by 1.0% in March. The Euro-zone Sentix investor confidence reading was estimated at -28.0 but showed a minor improvement from -35.3 to -34.3. Traders begin to lose optimism about the present situation which frustrates the recovering prospects. The eurozone PMI reading improved for a second month from 36.7 to 36.8.

Global growth outlook improved on green shoots in China and in the USM

Markets fear that the European Central Bank is behind the curve concerning the execution of its monetary policy as the present recession could continue. The global growth outlook improved on green shoots in China and in the US which boosts growing optimism. Nevertheless, it still seems that the central bank is unwilling to decide on non-standard measures since numerous members doubt the potential risks of such measures. Market participants believe that at the next policy meeting the committee will lower rates by 25bps. The European commission’s forecasts indicate a GDP contraction of 4.0% in 2009 and 0.1% in 2010, therefore the ECB could be obliged to extend their range of measures. Joaquin Almunia, Economic and Monetary Affairs Commissioner, stated: ‘The European economy is in the midst of its deepest and most widespread recession in the post-war era’.

European data weigh on Pound

The British Pound suffered significant pressure despite UK holiday volume and fell below 1.4870, after reaching a 1.4982 level. The weakness was a result of poor European figures, while more weakness could be ahead, which is proved by the failure of the pair to rise above the 1.500 price level. This Thursday the Bank of England will announce their rate decision which is expected to remain their benchmark rate unchanged at the record low of 0.50%. The central bank already initiated quantitative easing actions which affect credit markets and are forecasted to impact the economy during the next months. The completion of their purchase program of government debt will probably take an additional month while the 20-Day SMA at 1.4751 may reduce downside risk and could stimulate the pair.

Improving manufacturing activity boosts optimism

The Dollar started to recover on the poor European figures which compensated earlier loses which were the result of the Chinese PMI reading increasing from 52.4 to 53.5. Optimism for the global economy was stimulated by the recovery in manufacturing activity, which could be followed by US markets and may extend the period of the Dollar losing. The US pending home sales are expected to remain unchanged in comparison with the 2.1% increase in February. Investors could prefer to sit on the sidelines due to the minor improvement in the housing sector while there are market participants who believe that the housing sector weakness could continue as rising job losses increase the number of possible foreclosures. Rumors that General Motors could follow the Chrysler example may affect investor sentiment and provide the Dollar safe-have flows.