Euro Threatened with IFO Business Confidence Set to Fall to Lowest in 26 Years (Euro Open)

The Euro may extend New York session losses in European hours with Germany’s IFO Survey of business confidence expected to drop to the lowest level in 26 years in March. Overnight data saw Japan’s exports boosted by the cheaper Yen in February while New Zealand’s consumer confidence fell on rising unemployment in the first quarter.

Key Overnight Developments

• Japan's Merchandise Exports Boosted by Cheaper Yen in February
• NZ Consumer Confidence Lower in Q1 as Unemployment Rises
• Euro Consolidates, British Pound Lower in Overnight Trading

Critical Levels



The Euro consolidated daytime losses in overnight trading, oscillating in a 50-pip range above 1.3445 to the US Dollar. The British Pound trended lower, losing as much as -0.3% against the greenback.

Asia Session Highlights



Japan’s Merchandise Trade Balance printed better than expected February, showing an 82.4 billion yen monthly surplus versus expectations of a -20.0 billion yen deficit. The improvement came as exports gained a modest 1.3% while imports plunged 22.4% from the preceding month. The uptick in overseas sales may have been encouraged by a -7.9% drop in the value of the Japanese Yen through February, making goods cheaper for foreign buyers. We had expected the improvement having noted after manufacturing PMI ticked higher for the first time in six months in the same period.

On balance, the overall trade landscape remains decidedly bleak: the decline in export volumes has nearly doubled that of the drop in imports in the year to February, falling -45.4% versus a -25.5% reduction in outbound shipments. Dwindling overseas sales are set to continuing to push Japanese companies to cut back production capacity, boosting unemployment to put downward pressure on consumption and overall economic growth.

Japan’s annual trade surplus with the US, its chief trading partner, shrank to the lowest in 11 years through 2008. The tightening trade gap implies a net outflow of money from Japan and into the US, putting arguing for long-term upward pressure on the USDPY exchange rate.

New Zealand’s Westpac Consumer Confidence fell to 96.0 through the first quarter, down from 101.3 in the three months to December 2008. Dour sentiment is to be expected considering the unemployment rate stands at a 5-year high of 4.6% and is expected to rise to a whopping 6.4% through 2009. Weak consumer spending will deepen the worst recession that the antipodean nation has seen in 30 years, with fourth-quarter GDP expected to issue the fifth consecutive decline later this week, falling -1.1%.

Euro Session: What to Expect



Germany’s IFO Survey of business sentiment is expected to see the headline figure drop to 82.2 in March, the lowest in over 26 years. That said the Expectations component of the reading designed to forecast economic performance for the forthcoming six months is seen improving to 81.5 from 80.9. The result mirrors current forecasts calling for the economy to return to positive growth in the third quarter of 2009. Still, annual economic growth is set to fall -2.5% this year, the deepest recession since World War II. Overnight index swaps see the market pricing in a full percentage point interest rate cut from the European Central Bank when policymakers meet again on April 2nd.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Threatened with IFO Business Confidence Set to Fall to Lowest in 26 Years (Euro Open)

A Busy News Days Promises High Volatility

After yesterdays relatively calm trading session, today the economic calendar is filled with high impact data that threatens to sow large volatility into the market. From the wide range of news reports, ForexYard advises its traders to pay special attention to the German Business Climate, the U.S Durable Goods Orders, New Home Sales, and Crude Oil Inventories.



USD - Dollar Rises as Investors See U.S Recovery

The U.S currency extended gains on its Japanese and European counterparts Tuesday as optimism about a U.S. government plan to remove bad assets from banks' balance sheets prompted investors to resume safe haven bets on the Dollar. The USD rose versus the Japanese Yen to 97.87 from 96.94 Yen and against the EUR to $1.3464, up from $1.3633 late Monday. The Dollar also gained support from a growing view among market players that the Federal Reserve's quantitative easing (buying U.S. Treasury debt that would massively expand the Fed's balance sheet) would not undermine the valuation of the Dollar as many initially thought. The greenback however, slipped against the Pound, down to $1.4778, the lowest since Feb. 10th which was pushed up by an unexpected rise in U.K inflation.

The Fed's plan that was announced on Monday by U.S. Treasury Secretary Geithner has caused the Dollar to halt last week's slide, prompted as the Federal Reserve said its massive balance sheet expansion would include buying government debt. But despite the fact that the initial reaction to Fed quantitative easing was to sell the Dollar, some market participants reversed their views. Perhaps the U.S. will lead the global economy out of an economic recession. Although quantitative easing could lead to inflation as the money supply expands, economists said the other option is not to do anything, which could have more dire consequences for the dollar due to deflation and economic stagnation. It appears that in the long run the U.S. recovery plan has been benefiting the Dollar against both the Yen and the EUR.

EUR - EUR Slips vs. Dollar but Firm vs. Yen

The EUR came under pressure as Euro-Zone policy makers suggested Interest Rates in the region could fall further, just as data showed manufacturing and services sector activity continued to contract significantly. The currency fell 0.9% against the Dollar to $1.3508, down from the two month peak of $1.3739 touched last week. Against the Japanese yen the EUR rose 0.1% to 132.40 Yen having earlier struck 134.50 Yen. The European Central Bank (ECB) has announced that it has not used up all its room to maneuver Interest Rates. The news followed comments overnight from ECB President Jean-Claude Trichet, who again said the benchmark Rate could be cut to help kick-start the Euro-Zone economy.

On top of that, there was more negative news on the Euro-Zone economy, with key gauges of Euro-Zone services and manufacturing showing weal economic activity as firms slashed jobs and prices. The British Pound however, surprised with a rise of 0.7% against the USD at $1.4672 after data showed British annual CPI inflation rose to 3.2% in February from 3.0% in January. The Pound slumped 23% versus the EUR and 26% against the dollar last year as the U.K. economy slipped into its first recession since 1991 amid record losses at the nation's banks, prompting the Bank of England to cut the main Interest Rates to a record low of 0.5% in 2009. In yesterday's trading the GBP strengthened to 91.73 per EUR, the highest level since March 16, from 93.56 pence. Against the Yen, the currency jumped as much as 2.7% to 145.09, the strongest level since Dec. 1st. The U.K. currency may further advance against the USD toward $1.50 by May, if the GBP breaks through the key level of $1.4650.

JPY - Yen Declines as the Demand For Save Heaven Currency Diminishes

The Japanese currency inched up against the EUR and the AUD on Wednesday, pulling away from this week's five-month low as a drop in Japanese equities tempered buying of higher-yielding currencies. The yen climbed to 131.39 per EUR from 131.81 late in New York yesterday, when it touched 134.51, the weakest level since Oct 21st. Although the Yen has regained some ground after dropping on Tuesday to a 5-month low against the EUR and a 4-month trough versus the Australian dollar, it is likely to stay on the back foot, analysts have said. The JPY reaction was subdued to data showing Japan's trade balance returned to a surplus in February. The 82.4 billion Yen ($841.6 million) surplus contrasted with economists' forecasts for a deficit of 10.9 billion Yen. The surplus comes after Japan posted its largest deficit ever in January, when exports fell sharply due to a slowdown in the global economy.

The Yen role as a safe haven currency has apparently diminished, and there has been little reason for traders to buy the yen actively. Investors were also reluctant to buy the Yen with the Bank of Japan having raised the amount of government debt it buys outright to thaw credit markets. Instead, investors continue to favor currencies whose central banks have Interest Rates above zero and look unlikely to use quantitative easing to get their economies moving, such as the Australian dollar.

OIL - Oil Remains Steady Ahead of U.S. Supplies Data

Crude Oil prices rose slightly on Tuesday after U.S. stock markets bounced off their lows amid optimism that the government's plan to unburden banks of soured assets could help shore up the U.S economy. The gains were limited however, as dealers awaiting a round of U.S. Crude Oil Inventories data that analysts expected would show an increase in Crude stockpiles. Crude Oil rose to settle at $53.98 a barrel after hitting a 3 month high of $54.20 earlier in the day. Analysts said they expected Oil inventory data to be released by the U.S. Energy Information Administration on Wednesday to show a 1.2 million barrel build in crude stockpiles.

Energy demand in the world's biggest consumer economy has been hard-hit by the economic meltdown, buffering inventory levels as global consumption has been shrinking for the first time in a quarter century. Oil prices have climbed from under $33 last December, partly due to aggressive supply cuts from the Organization of Petroleum Exporting Countries (OPEC), but remain almost $100 below last summer's peak. OPEC agreed to hold output targets steady at its meeting in Vienna on March 15th due to concerns that higher prices may harm an ailing global economy. Ministers pledged to tighten compliance with record cutbacks agreed on last year to bolster Crude Oil prices.

Article Source - A Busy News Days Promises High Volatility

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