Merkel's Forecast to be Further Realized With Finalized GDP Estimate (Euro Open)

A third straight quarterly contraction in the German economy is expected to be confirmed tomorrow with the release of the final Gross Domestic Product estimate for the first quarter of 2009. It is likely that the number will further vindicate Chancellor Angela Merkel’s forecast of a 6% decline in aggregate output for the world’s fourth-largest economy in 2009.

Key Overnight Developments

• New Zealand’s Trade Deficit Shrank a Fifth Straight Month
• RBA Director McKibbin Doubts Stimulus Power

Critical Levels



Forex markets were slightly more volatile than in the previous day as market participants returned from their respective holidays to offer and bid their way through Euro selling. Indeed, the 16-nation currency faltered slightly against the Dollar in mid-session trading. Price action on the British Pound continued to mimic much of the Euro’s movements.

Asia Session Highlights



New Zealand’s Trade Deficit shrank for a fifth straight month in April as the demand for goods produced abroad continued to dwindle. The gap between imports and exports shrank to NZ$4.1 after demand from Asia dropped nearly 10% and imports from Europe fell NZ$176 million. Declining imports might have come on the back of a deflationary environment which saw producer prices decline by 2.5% in the first quarter. As the price of raw materials from abroad declined, the import metric would have naturally followed suit.

The debt generated by stimulative government measures will hamper the economy’s ability to grow, says Reserve Bank of Australia director Warwick McKibbin. In statements to The Australian, the board member also said that the country should look toward China as a reliable fuel for growth. Demand for Australia’s minerals and natural resources from the Asian country will act as a natural driver of export led growth for his country, McKibbin said. Running large deficits would reduce the availability of private funds to finance new investments, he stated. "The danger is you add too much fiscal deficit," he added. Indeed, "most fiscal policy doesn't do anything except switch spending from one period to another," the RBA director said. "When you change fiscal policy, all you do is stimulate the economy today out of future possible growth," he added.

McKibbin's statements deviate from the general consensus of the the board, which feels that the combined effect of both monetary easing and fiscal stimulus has began propping the economy. In fact, April saw some of these positive signs. The unemployment shocked many people after it unexpectedly dropped by 0.3 percentage points. Spending got a huge boost as retail sales rose more than four times larger than that which was expected.

Euro Session: What to Expect



Germany’s final Gross Domestic Product estimate is expected to confirm the country’s steepest plunge since the government began recording this statistic in 1970. The world’s fourth-largest economy most likely contracted for the fourth consecutive quarter in the first three months of 2009. The final estimate,comes two weeks after the preliminary one saw the non-seasonally adjusted figure display a bleeding German economy that shrank -6.7% in the 12 months through the end of March. When taking into consideration periodic events that occur on a seasonal basis, the figure is expected to come to a more optimistic, albeit still dreaded, -3.8%. This key data directly aligns itself with Chancellor Angela Merkel’s forecasts calling for a 6% contraction in her country’s economy this year. Recent comments by Jochen Sanio, Germany’s chief financial regulator, painted a possibly gloomier picture. In them, he said that the toxic debts on the balance sheets of many of his nation’s banks are “like a grenade” which are ready to explode if a series of “brutal” downgrades of mortgage backed securities by the rating agencies occurs. Perhaps these recent developments may spook consumers enough to reduce the GfK Consumer Confidence survey downward rather than allowing it to remain flat.

Euro-Zone Current Account data for March will likely continue to remain in negative territory. It may, however, gain a bit of strength as trade data showed an improved balance between exports and imports during the month. Income from abroad may have significantly toned itself due to the surge in emerging market equities in March. Much of this may have bode well for European income generation from abroad.

Switzerland’s Employment Level in the year through the first quarter of 2009 is expected to have declined for the first time in nearly six years during a trend in which the nation’s unemployment rate either rose or stood steady for nine consecutive months. This three month lag in the data may, however, not necessarily be indicative of the near-term outlook. April saw Switzerland’s consumer prices rise by the largest amount in nearly two years. The realized number beat expectations by 0.3 percentage points. Some of this inflationary increase may have been due to the slowing rate of labor market weakness; afterall, March’s rate of unemployed remained even.

Written by Luis Gil, DailyFX Research
Article Source - Merkel's Forecast to be Further Realized With Finalized GDP Estimate (Euro Open)

The Next Big Thing in the Forex Online Market

The British government was rocked last week, first from the scandal involving the insane spending done by their parliament members and then by the warning from Standard and Poor’s that their credit rating – or should we say debt rating – is in peril of being lowered due to huge budget deficits and a rising national debt not seen since World War 2. Did the Sterling fall though? No, it did not – at least not as much as one would think that a “AAA” rated country would fall after hearing that they will soon be subject to higher interest rates and unfavorable terms that comes with anything less than a “AAA” rating. What did happen was quite fascinating, and it was something that I have been saying here for months. The US Dollar collapsed on the news out of England.

Why? You might ask would the currency of a country across an ocean fall on bad news out of the British Isle’s. The answer is quite simple, Forex traders and investors know that the US is next on the chopping block. Although I firmly believe that they should be first based on their crazy debt to income ratio – they are running at a 12 Trillion Dollar deficit carrying a 1.5 Trillion dollar debt and GDP is expected to fall this year – the Dollar enjoys the privilege of being the Dollar, and thus it gets afforded a little more latitude when it comes to these matters.

But the real reason why the US was not first on this list was political and economic in nature. Lower the sovereign debt of the US and countries holding the bonds suffer. As the US will be faced with higher borrowing rates, and will not be afforded the right to offer so much debt and will be regulated as to the terms (10 year, 20 year 30 year), the value of the currency will fall and thus make the value of the debt already out there worth less. This will have a huge impact on the world economy and is probably one of the reasons why China is pondering accepting the Brazilian Real in trade over the US Dollar.

But one last thing on this, it is ironic though that while this might hurt the rest of the world, it will help the US get out of the mess quicker. By deflating the currency it means that the US has to pay less in order to repay a debt. For example, if China is holding $10 in bonds from 1999 those bonds are still worth $10 today – plus interest, however the value of the dollar is lower than it was in 1999 and so the payments that the US makes will be worth less than they were only a few months ago. Forex online blogsters are buzzing about this – and all those trading in the dollar should be aware that this is coming. Don’t say you were not warned.

USD-Negative Market Reversal Due this Week?

Many forex traders witnessing the strong bearish trends across the USD pairs and crosses have been wondering when it will come to an end. As last week's U.S. housing market data and unemployment figures proved worse than forecast, mixed with a boom in confidence for Euro-Zone economies such as Germany, the USD went negative. However, this week's data forecasts could create the rumblings of a reversal for the greenback. This exciting volatility is where money is made in the forex world; don't miss out.



USD - Dollar Drops on Poor Data

The American Dollar saw an extremely bearish session during last week's trading as it dropped in value against all the major currencies. The EUR/USD actually rose to the 1.4000 level for the first time in 5 months!

It appears that two main economic indicators have initiated the USD's downfall on all fronts throughout last week. For starters, the U.S Building Permits report revealed that hopes for an improvement in the U.S housing sector are currently unrealistic, as only 490,000 new residential building permits were issued during April. Many analysts have assumed that the first significant step in pulling out of the recession will be shown from the housing sector. The reason is very simple, it was the mortgages crisis that caused this gloomy economic condition, and a real improvement in the housing sector would have shown that both investors and the major banks have regained confidence in American real-estate, which should be a sign for all others that the economy is recuperating.

In addition, on Thursday, the weekly Unemployment Claims showed that 631,000 individuals have filed for unemployment insurance for the first time, making it the 16th week in a row on which over 600K people have done so. The combination of these two publications had a very clear effect on the Dollar, and its drop in value was only a matter of time.

As for the week ahead, a bundle of data is expected from the U.S economy, and traders should take notice of all of the major indicators. The Consumer Confidence report is expected on Tuesday, and analysts predict that the best result in six months may be published. This has the potential effect of reversing trends in the forex market, as it will show that people are regaining their confidence in the US economy, and in their government to improve the situation in the near future. The New Home Sales on Thursday will probably steal all of the attention on a busy news day, as the housing sector seems to have the biggest impact on the USD for the moment.

EUR - The EUR Soars amid Positive German Data

Last week the EUR saw bullish trends against most of its major currency counterparts, as its most significant appreciation was against the USD. The EUR/USD rose to over 1.4000, marking a 5-month record.

Last week's trading was highly impacted by the positive signals from the German economy. Germany is the biggest and strongest economy in the Euro-Zone, and thus has the most influence on the region's currency. On Tuesday, the German ZEW Economic Sentiment report was published with an amazing 31.1 mark. The Economic Sentiment is a diffusion index based on surveyed institutional investors and analysts. The 31.1 figure was the most positive figure seen since June 2007. What was so incredible about this result was that it followed a series of negative publications and was really "out of the blue." This had an immediate reaction on the EUR and a strong bullish trend, especially against the USD, took place. Later on last week, the German Manufacturing Purchasing Managers' Indices were release, both with better than expected figures, further strengthening the EUR.

Looking ahead to this week, the most important data expected from the Euro-Zone will be published later on today, at 08:00 GMT. The German Ifo Business Climate, which is derived from about 7,000 businessman who are asked to rate the level of current business conditions, has proven before to have a significant impact over the EUR, especially when analysts forecast that the positive signs from Germany will continue with a 85.1 figure. If the real result will be similar, another bullish trend might take place for the EUR, and the EUR/USD may hit as high as 1.4200 this week.

JPY - JPY Provides Mixed Results against the Majors

The Yen saw mixed results during last week's trading. While rising sharply against the USD, the JPY dropped against the EUR and underwent a volatile session against the GBP.

It seems that the negative results coming from the Japanese economy are the main reason for the Yen's volatile behavior. Last week it was released that the Japanese Preliminary Gross Domestic Product (GDP) had dropped by 4.0% in March, making it 4 consecutive months on which the value of all goods and services produced by the Japanese economy dropped. The Tertiary Industry Activity, which measures the change in the total value of services purchased by businessman, has also decreased by 4.0% in March. In addition, the Bank of Japan (BoJ) has decided to leave Interest Rates at 0.10% as it cannot drop it farther and is unwilling to raise it at the moment. On normal conditions, all this should have led to a significant drop for the JPY against every major currency; however, the bearishness of the Dollar was the leading force in the forex market last week, and thus even the weak Yen rose against the USD.

As for the week ahead, a batch of data is expected from the Japanese economy. The Trade Balance scheduled for Tuesday will be one of the most impacting publications as the Japanese economy relies greatly on its exports, and this report is one of the best ways to estimate this nation's economic condition. Traders should also consider the Retails Sales and the Household Spending indicators which could possibly dictate the Yen's movements later this week.

Crude Oil - $60 a Barrel Might Be a Solid Price for Crude Oil

Last week was a relatively calm week for Crude Oil. A barrel of oil was traded within the $59 to $62 price range, and wasn't too affected from the large fluctuations of the leading currencies.

Recent Notifications suggest that the Organization of Petroleum Exporting Countries (OPEC) desires to see Crude Oil reaching $70 a barrel; however, it is currently reluctant to cut supplies as demand for oil still hasn't shown real signs of recovery from the current world-wide economic crisis. In spite of OPEC's will, it appears that investors are pretty cautious on putting their faith in Crude Oil. Even in a week like the last one, on which the Dollar dropped on all fronts, Crude Oil barely rose by $2 a barrel. This could be interpreted as a clear sign of investors that for now the price around $60 a barrel correctly reflects the market value.

Article Source - USD-Negative Market Reversal Due this Week?