Sterling appreciated on leading of Conservative party

The Euro snapped five days of gains against the greenback as concerns begin to grow that the European Union’s latest rescue plan for Greece- a €45billion bailout package – won’t be enough to restore the single currencies value. The European Union’s single currency fell sharply against all but 2 of its 16 most traded currency counterparts, as the extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds rose above 400 basis points for the first time since Greece’s bailout package was announced last Sunday. The EUR/USD hit a fresh weekly low of $1.3515.

The yield on Greece’s 10-year notes advanced 0.02 percentage point to 7.09% on concern Greece’s won’t get the fund it needs to fund a deficit that is 12.9% of gross domestic product, the biggest in the Euro’s history. The Parliaments of Germany, France and Ireland must first vote on whether to contribute their share of the EU loans.

This morning (1000GMT), Eurostate will release the annual Consumer Price Index for the entire continent. The market expects that the annual adjusted inflation will continue to increase at 1.5%, and that core CPI is expected to be revised from 0.8% to 0.9% - however, only a substantially rise in this figure will push the ECB to contemplate a rate hike.

The British Pound rose 0.6% to 87.77 pence against the euro after a survey showed the Conservative Party has extended its lead over the reigning Labour Party, easing concerns that next month’s election won’t produce a clear winner. The Sterling appreciated for a second day in a row against the single European currency after Britain’s Daily Telegraph published a poll showing that the Conservative party was in the lead with 43% support rate, compared to the Labour party’s 31% support. This poll signals that the U.K turbulent political situation is beginning to stabilize, which, according to analysts, is particular good news for the country’s currency which has recently suffered on concerns that U.K will not have a majority government following the next election. While early in the day during the European trading session, the pound dipped as low as $1.53840. However, the British currency managed recover during the U.S trading session, to reach a high of $1.5509. The GBP/USD closed the day at $1.55002 in the forex online market.

Across the Atlantic, the number of Americans filing claims for jobless benefits unexpectedly increased last week, indicating the improvement in the labor market will take time to unfold. Labor Department figures showed yesterday that Initial jobless applications rose by 24,000 in the week ended April 10; however a Labor Department spokesman said the rise in claims was due more to administrative factors reflecting volatility around Easter than economic reasons. None the less, the number of jobless names passed the market predicted vale of 439K, to reach 484K – the highest level since February 20th. Reluctances among some companies to hire is among one of the biggest challenges facing the economy as it recovers from what is considered the worst recession since the Great Depression. Employment gains are needed to help stimulate consumer spending, which accounts for about 70% of the economy. This disappointing figure comes one day after Fed Chairman Ben S. Bernanke told congress that high unemployment and weak construction are among the “significant restraints” on the pace of growth. However despite a worse than expected result, the U.S Dollar was up against the euro following the release of the joblessness claims, with the EUR/USD shedding 0.82% to reach 1.3441.

Forex News: Past Trading underpinning for Future

The Euro strengthened yesterday to its highest level in more than three weeks versus the U.S Dollar after news broke that Greece would be receiving an international rescue package worth as much as €45 billion ($61 billion) to help it avoid a default. Following the announcement of the of the “rescue plan” the single currency rose to $1.36906, appreciating as much as 1.4%, its biggest gain since last September. The Euro’s gain, which was its third increase in the past three days, sent the Dollar Index tumbling 1.3% to its lowest level since March 18th.

The 16-nation Euro-Zone finance ministers reported that they would offer Greece €30 billion in three-year loans in 2010 at about 5% interest. An additional €15 billion would come from the International Monetary Fund, resulting in what could possibly be the largest multilateral financial rescue ever attempted. The Greek official said the government would decide within a few days whether to ask for the aid, depending on whether market interest rates subside. For the time being, Athens will try and refinance its public debt on the bond market. This week, the Greek government will hold another bond auction that will surely be a test if the Euro Zone’s recent bailout plan has restored faith in the Greek bonds.

By yesterday’ close the single European currency has retreated from its near three week high against the USD as Greece prepares to sell €1.2Billion in 26 and 52 week bills. The Euro closed at $1.35924, down 0.71% from the day’s high in the forex online market.

The Japanese Yen rose, ending three days of losses versus the EUR, on speculation demand for Greece’s short-term debt will be weak at an auction today. Japan’s currency appreciated versus all 16 major counterparts after Asian stocks dropped, weakening demand for riskier investments. After closing yesterday at 126.119, the EUR/JPY continued to fall throughout this morning’s trading session, touching on a low of 125.690. Similarly, the USD/JPY fell during this morning’s Asian session- tumbling as much as 0.64% from yesterday’s closing price of 93.161, to hit a session low of 92.563.

Yesterday, the U.S posted a budget deficit for a record 18th straight month in March, reflecting gains in government spending to bolster the economy. The excess of spending over revenue declined to $65.4 billion last month, compared with the $220.9 billion reported last month, according to Treasury Department figures released yesterday in Washington. A deficit that’s forecast to reach a record $1.6 trillion this fiscal year illustrates the challenges facing President Barack Obama and Congress as they struggle to stimulate the recovery while keeping the budget gap manageable. Deterioration in the government’s balance sheet in coming years raises the risk of higher interest rates. Tonight, U.S Fed Chairman Ben Bernanke will speak. He will continue to speak tomorrow at the Joint Economic Committee where he will lay out his economic outlook.

Forex recouping the market trends

The Euro surged to the highest level in more than three weeks against the U.S Dollar after European governments offered Greece a rescue package worth as much as €45Bn ($61bn) at below-market interest rates.

Finance Ministers of the 16-nation single currency bloc have agreed to offer as much as €30bn in three year loans, at around 5% interest. This is much lower than current borrowing costs facing the debt-stricken nation, with the yield on Greek government debt rising to a record high of 7.5% last Thursday. The aid package also involves the International Monetary Fund, which will provide an additional €15bn. "The Eurogroup is confident that the determined efforts of the Greek authorities and of its European partners will allow to overcome the fiscal and structural challenges of the Greek economy," an E.U. statement said.

Following the release of the news in the forex online market, the EUR rose 1.2% to strike a high of $1.36906, the highest price for the single currency since March 18th. This unexpected jump comes a few days after the single European currency dropped to within one cent of an 11-month low against the greenback, last Thursday. It rose 1.1%, the most since March 31, to 127.19 yen. The Euro also managed to regain all of last week’s losses against the British Pound. Following the news of a “Greek Bailout”, the EUR/GBP appreciated 0.50%- jumping from last Friday’s closing price of 0.87802 to a high of 0.88241, this morning.

The E.U. decision follows a nightmare week for the Greek administration, which saw borrowing costs soaring to a record high, while international ratings agency Fitch lowered the country's credit rating on Friday to 'BBB-' from 'BBB+' with a negative outlook.

For a second straight week, the British Pound climbed against the U.S dollar, as U.K producer prices jumped in March by more than the market has predicted, in the largest increase for since November 2008. PPI Input soared a record 3.6% between February and March, versus an expected increase of 0.6%, boosted by the rising cost of petroleum products. Britain’s Office of National Statistics also reported that the PPI Output increased above expectations, rising 0.9% for the previous month, and 5% from a year earlier. This monthly rise was more than double the market forecasted increase of 0.4%, adding signs that Britain’s economic recovery is gathering speed. The GBP closed on Friday at $1.53692, up 0.598% from the day’s opening price of 1.52778, and up 0.68% from the week’s opening price of $1.52654. In this morning Asian session, the GBP/USD extended above the 1.54000 mark, to hit a 7-week high of 1.54833, before pulling back to the 1.5435 area.

Joblessness, Home foreclosure, Weak lending; 3 factors troubling the US Economy

In the US yesterday Federal Reserve Chairman Ben Bernanke said joblessness, home foreclosures and weak lending to small businesses pose challenges to the economy as it recovers from the worst recession since the 1930s.

“We are far from being out of the woods,” Bernanke said yesterday in a speech in Dallas. While the financial crisis has abated and economic growth will probably reduce unemployment over the next year, the U.S. faces hurdles including the lack of a sustained rebound in housing, a “troubled” commercial real estate market and “very weak” hiring, he said.

The remarks reflect concerns by Fed officials at their meeting last month that the job market and tight credit would restrain consumer spending. At the meeting, Bernanke and his colleague's reiterated interest rates will stay very low for an “extended period.” While he didn’t repeat that in yesterday's speech he did say the Fed’s “stimulative” rates will aid growth.

The US Dollar climbed against both the Euro and Sterling in the forex online market yesterday. Against the Euro it posted its third day of gains, climbing 0.41% to close at USD 1.3344. It climbed for the second day against the Pound, gaining 0.20% overall to close at USD 1.5239.

In Europe revised figures have shown that the economy failed to grow at all in the final quarter of 2009 as companies cut spending more than previously expected. The European Union's statistics office said that the quarter-on-quarter growth in the three months to December had proved to be zero. This was revised down from a previously reported 0.1%, according to Eurostat.

GDP in the 16-nation Euro Zone remained unchanged compared with the third quarter when it rose 0.4%. Year on year the economy of the 16 countries using the Euro contracted by 2.2%, more than the previously expected 2.1%.

The European economy is now showing signs of rebounding from its end-of-year relapse as the global recovery prompts companies to step up investment levels. While unemployment is at an 11-year high, economic confidence improved in March and the region’s services and manufacturing growth accelerated to the fastest pace since August 2007.

A separate report yesterday showed that German factory orders held steady in February after a surge in January as an increase in foreign demand for basic goods and machinery countered a drop in domestic orders. Orders, adjusted for seasonal swings and inflation, were unchanged from January, when they jumped 5.1%, according to the Economy Ministry in Berlin. Economists had forecast a 0.5% decline for February.

Orders from outside the 16-nation Euro area increased 2.9% in February from the previous month, driven by a 5% surge in basic goods orders and a 2.4% gain in demand for investment goods, yesterdays report showed. Domestic orders fell 1.9% from January. January’s overall orders increase was revised up from an initially reported 4.3% gain. The data, combined with solid sentiment indicators, suggest the recovery in the manufacturing industry will continue.

Forex News: Aussie Gained against USD with RBA rate benchmark setting

In the UK the construction sector expanded in March for the first time in more than two years, led by a sharp rise in new orders in the housing and commercial sectors. The Chartered Institute of Purchasing and Supply/Markit construction PMI index jumped to 53.1 last month from 48.5 in February - the first reading above the 50 level that divides growth from contraction since February 2008.

Incoming new orders increased during March for the first time in four months and only the second time in the past two years. However, construction firms continued to shed jobs in March and concern over cutbacks in government spending meant they were less optimistic than in February.

"Though it's great to see the UK construction sector turn the corner after two years of relentless contraction, it's still very early days," said David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply. "The recession hit construction the hardest and because the industry is operating from such a low base, this upturn may be short-lived."

Of the three subsectors, house-building showed the strongest rise in activity, expanding for a seventh consecutive month. Commercial activity reported growth for the first time since February 2008. The civil engineering sub-sector, which is typically more reliant on public spending, contracted. Construction accounts for around 6% of Britain's economic output. In the first quarter as a whole, British construction activity was broadly unchanged, suggesting the sector is no longer acting as a drag on GDP.

Early tomorrow the UK manufacturing production PMI will be released. This indicator dropped by 0.9% last month, the first drop in five months, hurting the Pound. A correction is predicted this time – a rise of 0.7%. Note that manufacturing is 80% of industrial production which is published at the same time, that figure is expected to rise by 0.5%.

This week's major announcement for the Pound is the rate decision; the announcement will be made tomorrow at 11.45 GMT. The rate is expected to remain unchanged at 0.5%. The Asset Purchase Facility is also expected to remain unchanged.

In the forex online market yesterday against the US Dollar Pound gained 0.18% to close trading at GBP 1.5241.

American unemployment claims will also be published tomorrow at 12:30 GMT. Yet another drop in the weekly jobless claims is due. After reaching 439K last week, they’re predicted to drop to 432K, supporting more job gains in the next Non Farm Payrolls.

Finally yesterday Australia’s central bank raised its benchmark interest rate to 4.25% and signaled further increases, dismissing warnings that higher borrowing costs are already eroding consumer spending. Governor Glenn Stevens boosted the overnight cash rate target from 4%, the Reserve Bank of Australia said in a statement in Sydney yesterday. The Aussie gained 0.74% against the US Dollar following the announcement, jumping from AUD 0.9207 to AUD 0.9276.

Stevens was the first G-20 policy maker to raise borrowing costs twice this year. By contrast, the U.S. Federal Reserve Chairman Ben S. Bernanke said last month that the world’s biggest economy “continues to require the support of accommodative monetary policies.” The Fed has kept its benchmark rate close to zero since late 2008 and the European Central Bank’s rate is at a record low of 1%.

Forex News: U.K Retail sales rebounded

In the UK retail sales rebounded more than economists forecast in February with the biggest jump since May 2008 as Britons raised spending on goods from electrical items to auto fuel. Sales rose 2.1% from January, when they slumped by a more-than-previously-expected 3% in the longest cold snap for three decades. Excluding fuel, sales rose 1.6%, the most since June.

The increase in sales for February was led by an 11.2% jump at household goods stores, the statistics office said. Auto fuel sales rose by 9.1% and textile, clothing and footwear shops had a 1.1% gain. Food stores showed a 1.2% drop, the most since June 2008.

The January sales drop was revised down from a decline of 1.8% previously reported because of late returns of data from retailers, the statistics office said.

Next, the U.K.’s second-biggest clothing retailer said today full-year earnings rose 20% as it expanded Internet and catalog sales and sold more goods at full price in stores.

UK Chancellor of the Exchequer Alistair Darling, presenting his budget report to Parliament Wednesday said that to start cuts in public spending before the recovery was assured “would be both wrong and dangerous.” The ruling Labor Party’s resistance to faster spending cuts have helped it narrow the lead of the opposition Conservatives ahead of a general election due by June.

Jobless claims fell last month at the fastest pace since 1997, though the number of people in work in the three months through January dropped to a four-year low of 28.9 million.

In the forex online market yesterday the Pound continued to decline against the US Dollar. It fell 0.50% to close at GBP 1.4811. At also dropped 0.10% against the Euro closing the day at GBP 0.8960.

Yesterday was day one of the two day EU economic summit being held in Brussels. News has emerged that all 16 Euro Zone countries have backed a financing plan to help debt-laden Greece. The plan will also include assistance from the International Monetary Fund.

The safety net would total up to 22bn Euros. It would apply only if market lending to Greece dried up. Euro Zone nations would grant co-ordinated bilateral loans, totaling some two-thirds of the funding, French President Nicolas Sarkozy said.

Greek PM George Papandreou called it "a very satisfactory" move. The president of the European Council, Herman Van Rompuy, said the deal was significant "not just for Greece, but for the stability of the Euro Zone". He added that the deal should tell markets to "have confidence that the Euro Zone will never abandon Greece".

European Commission President Jose Manuel Barroso said he was "extremely happy that we've reached this deal", calling it "a right decision". The deal still needs to be backed by the rest of the 27-member EU. The Euro Zone had avoided seeking an IMF loan for Greece, preferring a European solution and anxious to maintain global confidence in the euro.

Chancellor Merkel has stressed the need to learn lessons from the crisis, saying that she wants a treaty change to allow sanctions to come into force should a Euro Zone country ever default on its debts. Mr. Papandreou urged EU leaders to act to stabilize the Euro.

The single currency hit a 10-month low against the US Dollar on Wednesday after a credit downgrade for Portugal, which is also struggling with heavy debts. The Euro reversed a three day slide against the US Dollar in trading yesterday, gaining 0.43% to close at EUR 1.3329.

Despite of Growing Trade Balance Loonie dips down

The U.S Dollar fell against most of its major counterparts after a report on U.S. trade indicated the global economic recovery may be slowing, reducing demand for higher-yielding assets.

The U.S trade deficit narrowed unexpectedly by 6.6% in January, as demand for foreign oil and automobiles dropped. The deficit fell to $37.3 billion from a revised $39.9 billion in December as Americans imported the fewest barrels of crude oil in a decade. Exports fell 0.3%, the first decline since April, on fewer shipments of commercial aircraft and autos. In addition, the U.S. trade deficit with China narrowed to $18.30 billion compared with $20.57 billion in the same month last year.

Across the border Canada’s trade balance grew more than expected in January to 0.8B, as higher prices for commodities such as gold boosted exports, while imports fell. According to the figures released by Stats Canada January's surplus was the largest since March 2009. The pace of growth in exports slowed, as volumes fell 0.3%, on the back of smaller sales of autos as well as machinery and equipment. The Canadian dollar has risen about 25% against its U.S. counterpart over the past 12 months, making the country’s goods more expensive abroad leading to its decline in exports. However, this was offset by a 0.8% jump in prices, led by industrial goods and materials including precious metals, aluminum and alloys.

Despite beating market expectations, the Canadian Dollar fell against 14 of its 16 major currency counterparts in the forex online market, as the event was overshadowed by the unforeseen 6.6% fall in the U.S trade deficit. The Loonie weakened as much as 0.7% to C$1.0322 per U.S. dollar from C$1.0292, prior to announcement of the trade balances.

At noon today (1200GMT), Statistics Canada will release the unemployment rate for February. Last month, the number of employed Canadian’s increased by 43,000, more than three times market expectations – pulling the unemployment rate down to 8.3%, its lowest level since May of last year. The unemployment rate is expected to remain unchanged at 8.3%, as the market predicts that number of employed people will rise by 17,500, supplying a strong week ending for the Canadian dollar.

Japanese Yen soaring high against the EUR

After closing down against the USD, for the 6th time out the past seven weeks, the Euro appreciated against 11 of its 16 major currency counterparts in the forex online market following French comments that helped aid risk appetite. Following the meeting between the French President Nicolas Sarkozy and Greek Prime Minister George Papandreou, the French President reportedly vowed to help Greece if needed and pledged to crackdown on market speculators targeting the country. The EUR/USD, however, has been having rather mixed reactions and continues to remain within its consolidation phase as the highly traded pair has been unable to rise toward last Wednesday’s highs of 1.3735.

After meeting with both the German Chancellor and the French President, the Greek Prime Minister will travel today to Washington D.C to meet with President Barak Obama.

Yesterday morning, Germany announced that its industrial productions rose in January as energy output surged throughout the unseasonably cold winter, helping to offset a collapse in the construction activity. Germany’s recovery from the recession froze at the end of 2009 and the coldest winter in the past 14 years is not helping to heat up the country’s economic recovery. While Industrial Production came out below market expectations of 1.1%, the 0.6% rise between December and January indicates that Germany could be resuming its path towards economic recovery. The euro was little changed after the report and traded at $1.3654.

The Japanese Yen rose against the Euro, snapping a two-day drop, on speculation that Japanese companies are bringing home overseas earnings before the nation’s fiscal year ends this month. The Yen appreciated against all of its 16 major currency counterparts following China’s foreign-exchange regulator statement that speculative capital is flowing into the country, fueling optimism the funds will also boost neighboring economies. The Yen rose to 122.58 per Euro early this morning (6:38 GMT), from 123.13 per Euro in New York yesterday when it dropped to 123.90 per Euro, the weakest level since Feb. 23. Japan’s currency gained against the US Dollar, jumping from yesterday’s 89.99 to 90.31 this morning.

Greenback sustains its bearish trend

Consumer confidence in the U.S fell sharply in February, plugging to its lowest level since April 2009. After reaching a 16-month high, of an upwardly revised of 56.6 this past January, the CB Consumer Confidence index sank a record 11 points to 56.0, as Americans turned more pessimistic about job prospects and the U.S economy.

For the seventh consecutive month, home prices in 20 U.S cities rose in December, signaling that the housing prices, concerned to be at the center of the worse economic recession since the Great Depression, are begin to stabilize.

Yesterday’s S&P/Case-Shiller Indexes showed that home prices increased 0.3% from the previous month on a seasonally adjusted basis- increasing more than expected, and matching gains seen in last November. While the index reports that housing prices were down 3.1% from December 2008, this decrease is has been the smallest yearly change seen since May of 2007. The S&P/Case-Shiller indicator came one day ahead of New Homes report.

Two months ago, this leading indicator took a dive, plugging to a new low showing everybody that the housing sector is heavily depended on government aid- since then, it has not been able to return to its previous levels. Last month’s low number of new homes sales is predicted to be followed by a slight increase this month, analyst predict sales to edge up to 354K. While the New Homes sales indicator generally has a big impact on the market, the report will most likely be overshadowed by Bernanke’s testimony.

Despite a drastic fall in consumer confidence yesterday, the greenback was able to maintain its bearish trend against its European counterpart, hitting as low as 1.34952. Although throughout the course of the day, the highly traded currency pair managed to bounce back slightly, the closing at 1.35118, down 0.65% from its opening daily price of 1.36001. Conversely, the greenback dropped a total of 1.09% against the Yen as investors flocked to the safe haven status of the Japanese currency in trading sessions yesterday. The USD/JPY plugged a drastic 1.4% before leveling out and closing at 90.194.

With the most significant economic indicators being released today revolving around the U.S. economy; the Dollar is likely to see some heavy volatility against its major currency counterparts, especially against the Euro and Yen.

Today, forex online investors will want to pay careful attention as US Federal Reserve Chairman Ben Bernanke is set to begin his two will begin his two day annual Humphrey-Hawkins testimony on monetary policy before Congress. In anticipation of the speech, the dollar index, which measure the US unite against a trade-weighted basket of six major currencies, fell to 80.788 in today’s Asian afternoon session from 80.874 in late North American trading Tuesday.

Following last Thursday’s unexpected rate hike for emergency bank loans, anticipation is high for any new news regarding the state of the U.S. economy. Positive sentiment will likely lead to major gains for the greenback, while If Bernanke’s statement “discourage an early monetary tightening policy” the dollar may likely be forced to forfeit some of last week’s heavy gains.

EUR/USD Unable to erase all its weekly losses

The USD soared across the board on Friday, as the dollar index reached an eight-month high of 81.342 in the forex online market.

The greenback rallied against its most traded peers, following release of the FED’s announcement, late last Thursday night - to boost the benchmark interest rate from 0.50% to 0.75%.

The Fed’ also announced that “the typical maximum maturity for primary credit loans will be shortened to overnight from March 18. These changes are intended as a further normalization of the Federal Reserve’s lending facilities.”

The Fed policy makers went on to state that “The moves do not signal any change in the outlook for the economy or for monetary policy.”

However, despite the Fed’s statement, the currency markets interpreted this unexpected move as a signal that the US is ready to exit its currency Easy (lose) Monetary Policy used to combat the financial crisis.

Following the Fed’s decision of a rate hike, the US core CPI came out below expectations, and even ventured into negative territory with readings showing a fall of 0.1% from the previous month. The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is showing few signs of inflation.

For the fifth straight month, the consumer-price index increased 0.2%, led by higher fuel costs. However, excluding energy and food, the core CPI unexpectedly fell 0.1 percent, reflecting a drop in new-car prices, clothing and shelter.

For the 6th week in a row, the dollar posted weekly gains against the Euro – the longest streak since a sixth week period ending during the summer of 2000. After plunging 0.788% in last Thursday’s session, its lowest price against the greenback in nine months, the Euro managed to regain some of its prior losses against the USD, increasing by 1.192% on Friday.
However, despite a remarkable recovery right before the week’s end, the EUR/USD was unable to erase all of its weekly losses, and closed the week at 1.36111 - down a mere 0.0279% from last Monday’s open.

Last Friday, the EU saw the release of several key economic indicators, including the monthly German PPI, which declined slower than expected. Germany’s Producer Price Index dropped 3.4% year-on-year in January, compared the 5.2% fall in the previous month.
On a monthly basis, the indicator rose 0.8% in January, compared to the previous fall of 0.1% in the preceding month, and a 0.3% expected.

A rise in output helped German manufacturing activity, expand at its fastest pace since June of 2007, indicating a healthy resumption of growth in the EU’s leading economy.

A flash estimate of the Market composite purchasing managers' index (PMI), which surveys both the manufacturing and services sectors, rose to 55.4 from 54.6 in January, with activity expanding at its quickest pace since August 2007. The manufacturing sector PMI surpassed expectation with a reading of 57.1, a dramatic increase from January’s 53.7. While the service sector PMI came in below expectations, it still remained in positive territory, growing for a seventh consecutive month.

Following the release of these key German figures, the EU announced the Flash manufacturing PMI as well as Flash Service PMI for the entire 16-single currency bloc, reflecting similar movements as the German PMIs. While the euro zone’s manufacturing sector recorded its best month in the past two and half years (out at 54.1, versus expected 52.8 and prior 52.4), the Service sector expanded at a slower pace than expected, out at 52.0 versus expected 52.6 and prior 52.5.

Early this morning, the Euro managed to take back all of the ground lost last week to the USD, as the Asian markets appeared to prefer risk on options- the EUR/USD squeeze as high as 1.36525. Out tomorrow, is the German Info Business Climate – this major survey of 7,000 businesses has been steadily rising. Last month’s 95.8 score is expected to be followed by 96.3, continuing the steady uptrend seen throughout the past year.

The Dollar Index gained nearly 1%, as the FED raised interest rates to 0.75%

For the first time in three years, the Federal Reserve unexpectedly increased the discount interest rate by 0.25bps. The dollar rallied across the board on this surprise move, including climbing to a nine-month high against the Euro.

The greenback headed for a sixth week of gains against the single European currency as the central bank took another step to withdraw from the unprecedented measures it used to halt the financial crisis.

Immediately after the release of the Fed's statement, the EUR/USD tumbled to a new low of 1.3444, from 1.3568 - plunging a total of 0.9% over the course of yesterday's Forex online session. The greenback traded at 91.90 yen from 91.81 yen after earlier advancing to 92.09 yen, the highest since Jan. 12.

The Fed surprising decision to raise the benchmark interest rate will current enhanced speculations that the US will withdraw its stimulus measures ahead of other developed countries - further fueling the dollar to appreciate.

This unexpected rate hike comes in the wake of the yesterday's release of a powerful string of significant economic data. The US January’s PPI, reporting an increase of 1.4% (core +0.3%) from December -this 1.4% rise in prices paid to factories, farmers and producers followed a prior 0.4% between November and December of last year.

The PPI reports shows significant inflationary pressure from higher commodity prices – crude oil prices rose by 9.6% last month and natural gases increased by 25.5%. Later today, the US will release its CPI – generally considered less volatile than the PPI, the January’s Consumer Price Index is expected to show an increase of 0.3% from the previous month, versus a 0.1% rise between November and December of last year.

Moreover the number of Americans filling for first-time unemployment insurance unexpectedly shot up by 31,000 last week, as the number of initial jobless applications hit 473,000, versus predicted 440K. Despite an increase in sales, companies are still reluctant to hire, and may demand more and stronger evidence that indeed sales are increasing and that the market is beginning to recuperate.

Yesterday’s sequence of powerful economic indicators for the US concluded with the Philly Fed Manufacturing Index. The report showed that manufacturing activity in the Philadelphia region expanded in February for its sixth consecutive straight month, as orders surged to its highest level in more than 5 years – further exemplifying how factories are leading the economic recovery. The index fell in line with expectations, rising to 17.6 this month from 15.2 in January.

Return of the Greenback

After one of the wildest and busiest weeks this year in the forex market, the USD emerges as the clear winner.



Last Friday, the US released their much anticipated Change in Non-Farm Payroll – for the first time, in over a year this report was expected to show to an increase in jobs of 10K last January. Unfortunately, despite analysts’ predictions, the NFP continued to fall by 20,000- reflecting a plunge in construction employment, a drop in state and local government hiring as well as companies decision to boost workers’ hours and overtime instead of hire new employees. Oddly despite a negative NFP, the unemployment rate in the U.S unexpectedly declined in January, to 9.7%-the lowest level since last August. The result of this lower than expected unemployment, fueled the dollar to continue

appreciating against both the Euro and the Pound.

Following last Thursday’s news that both the ECB and the BoE were holding their interest rates at their current historically low levels of 1.0% and 0.5%, respectively, both the EUR and the GBP plummet against their American counterpart. While the Pound fell from its opening price of 1.59004, closed at 1.57656 (falling nearly 0.847%), the Euro reached a new 8 month low, falling a drastic 1.17% and closing at 1.37269.

The tragedy of the Pound and the Euro, continued on Friday following the release of America’s better than expected unemployment rate, as both currencies continued to depreciate against the greenback- with the Euro falling another 0.3635%, closing off the week at an even lower 8 month low of 1.36771 while the Pound continued to plummet to 1.56393.



For the second week in a row, positive news from the US has pushed the greenback towards a strong finish. The only currency that was able to hold its own against the progressively stronger USD, and the positive economic data coming out of the United States was the CAD.



Ninety minutes prior to the release of the US NFP and unemployment rate, Canada announced its employment change of the past month, as well as its current unemployment rate. January’s employment change came out almost three times higher than predicted at 43K versus expected 15.2K (and prior -2.6K). The Canadian Bureau of Statistics reported that while full-time employment rose by 1,400, part-time jobs surged by about 41,500, producing Canada’s fourth increase in employment in the past 6 months. As a result, Canada’s unemployment rate unexpectedly fell from its prior (and predicted) level of 8.5% to 8.3%. Instantly after the release of this positive Canadian economic data, the USD/CAD fell from 1.0750 to 1.0720.



As a result of last week’s intensified hype that the US NFP was predicting an increase in the number of jobs for January, for the majority of the past week, the USD strengthened against its neighbor’s currency. While the positive Canadian unemployment news caused the Loonie to retake some of its lost ground from the USD, the USD/CAD increased a total of 1.03% last week, with the neighboring pair closing at 1.07137.



Later today, the CAD could very well regain some last week’s losses as at 13:15GMT, Canada will announce its Housing Stats. This monthly report, which depicts the annualized number of new residential buildings that began construction on January, is predicting to show an increase of 5K from the previous report (expected 180K versus prior 175K).



Compared to chaotic events of last week, this week seems relatively calm, with the only key economic data of today being the above mentioned CAD Housing Stats. Tomorrow (930GMT), Great Britain will announce its Trade Balance, expected to continue to show a deficit of -6.6B, versus the prior reported deficit of -6.8B. In regards to Trade Balances, on Wednesday both Canada and the US will simultaneously announce theirs. This double hitter event usually causes the USD/CAD pair to dramatically fluctuate- potentially giving an opportunity for the CAD to recovery against the US dollar.

Sterling falls on BOE revelations; Dollar pulls back after home sales disappoint

GBP

The British Pound Sterling fell on Wednesday, after the release of the Bank of England’s policy meeting minutes were released.

The transcripts showed that all nine members of the Bank’s Monetary Policy Committee voted in favor of keeping interest rates at ½ of a percent and extend the 200 Billion Pound asset purchasing program.

The impression given by the minutes is that every committee member is sitting on a fence waiting for something to happen, declaring they will re-evaluate the situation in their February meeting.

This lack of leadership or dissent to some degree has unnerved Forex investors who are concerned that the Bank is not acting fast enough to wind down the stimulus measures implemented earlier in the year.

At 10:00 GMT, the Pound was trading down .07% against the US Dollar to 1.5933 after initially falling more than .5%. The Sterling was also down .27% against the Euro to .8946, down .24% versus the Japanese Yen to 146.25, down .47% to the Swiss Franc to 1.6666 and down .64% against the Canadian Dollar to 1.6771.

USD

The US Dollar gave back some its recent gains on Wednesday after a late session data release brought back doubts about the US economic recovery. New Home Sales, which were expected to rise to 440,000 dropped 11% to 355,000.

The October number also came back to ruin the holiday spirit for the Greenback as it was revised downward from 430,000 to 400,000.

The disappointing number was the largest drop since January and brought the housing market back to levels not seen in seven months.

The Dollar had been the benefactor of a spate of positive data in the past week that gave investors confidence in the strength of the recovery, however after five straight positive sessions, it appears as if the Dollar is set to give back some.

Today’s durable goods and initial unemployment numbers could set the tone for the last week of 2009 trading next week.

At 10:10 GMT, the US Dollar was trading down .51% to the Euro to 1.4317, down .44% against the Japanese Yen to 91.42, down .48% to the Canadian Dollar to 1.0521, down .35% versus the Australian Dollar to .8792, down .6% against the New Zealand Dollar to .703 and down .91% to the Swiss Franc to hold in at 1.0396.

Happy Holidays

This is the final Market review before the Christmas Holiday. We wish all of our customers the Merriest of Christmas’, Happiest of Holidays and most Joyful of New Years.

May you realize your dreams in the year to come, have success follow you wherever you go – and may peace fill this planet we all share.

Forex News by Finexo.com

USD

Friday’s US data and Q3 earnings reports probably gave us a timely reminder of how fragile and patchy the economic rebound really is and markets tended to favour the “risk-off” trade heading into the weekend. While the industrial production and capacity utilization data looked solid on the headline, the current need to adjust numbers for the impact of the one-off cash-for-clunkers vehicle sales. In essence, the improvement of +0.7% was only +0.4% ex-vehicles, and still showed a 6.1% year-on-year decline. The preliminary University of Michigan confidence index was also significantly lower coming in at 69.4 versus 73.1 expected and 73.5 last. On the Q3 earnings front, Bank of America cast a cloud over earlier more-buoyant results when it revealed a larger-than-expected loss of rising consumer defaults.

CNY and EUR

China was hitting the headlines on Friday, and over the weekend, as the US Treasury highlighted that China’s piling up of foreign reserves threatened to slow the correction of global imbalances, though again fell short of branding the Chinese authorities as a currency manipulator. Similar thoughts seem to be surfacing again in Europe as well with the head of euro-zone finance ministers Jean-Claude Juncker announcing that he, ECB chief Trichet and EU Monetary Affairs Commissioner Almunia would travel to China before year-end to discuss the Yuan’s exchange rate. A similar visit went ahead in November 2007 where the EU plead for a faster appreciation of the Yuan, a plea that was rejected at the time by Premier Wen Jiabao.

Meanwhile on the China economic front, various officials have been more upbeat about the recovery. The chief economist at the National Bureau of Statistics said that China’s V-shaped recovery could extend into next year. An official from the National Development and Reform Commission also said that China would have no difficulty in reaching the 8% official target for the full year 2009, having already reached 7% in the first 9 months of the year.

GBP

The pound was pressured by articles in the Sunday Times and Telegraph with the former highlighting comments from MPC member Posen. Posen said he was in favour of increasing quantitative easing and was not so concerned about overshooting inflation in the current environment. The QE comments ran contrary to those from BOE’s Fisher and Bean last week, who favoured a “pause and wait-and-see” approach. Additional pressure was piled on by an article in the Telegraph, quoting the Confederation of British Industries who warned that Britain risk a sterling crisis if public finances are not brought under control by 2015-16.

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