TradingEducation.com, Darrell Jobman, Editor-in-Chief

by Darrell, Posted On: 03/11/2009

EUR/US$

The Euro pushed higher in Asian trading on Tuesday before consolidating around 1.27 in early Europe. The Euro-zone data offered no support to the Euro with the German trade surplus weaker than expected at EUR8.3bn for January from a revised EUR10bn previously with a 4.4% monthly decline in exports. There was also a sharp 3.1% decline in French industrial production, illustrating the steep regional downturn.

The Euro still advanced strongly in early New York with a peak above 1.28 as global equity markets rallied strongly.

There were notably downbeat comments from some ECB officials during the day. Orphanides, for example, stated that the recent data indicated a worsening outlook and he did not believe that the Euro-zone would recover in 2009 and possibly not in 2010. In contrast, Mersch stated that he was sceptical about excessively low interest rates while Weber suggested that 1.0% would be a floor for rates. There will be a greater risk of divisions within the Euro area as the economic downturn intensifies and any evidence of a lack of unity would tend to undermine the Euro.

As far as US data is concerned, the latest IBD consumer confidence data recorded a small increase for February while wholesale inventories also declined with the data having limited impact.

Fed Chairman Bernanke stated that big banks would not be allowed to fail and this may provide some temporary relief to sentiment, especially with Citigroup also providing a reassuring statement, although a high degree of uncertainty will continue. The Euro weakened sharply to lows near 1.26 in US trading before rallying to 1.2670 in choppy trading.



Yen

Confidence in the Japanese economy remains very weak with domestic and export-related fears.

The Bank of Japan stated on Tuesday that it would consider increasing purchases of government bonds if the crisis deepens. The dollar was still finding tough resistance above the 99 level as wider demand for the US currency was also weaker on Tuesday. The yen remained generally weaker on the crosses with the Euro finding tough resistance above the 125.50 level.

As equity markets rallied, the dollar pushed back to 98.60 against the Japanese currency in New York. The machinery orders data will be watched closely and a steep downturn would increase fears over the Japanese economy which would also tend to keep the yen on the defensive.

Sterling

The UK data offered no support on Tuesday with the BRC recording a 1.8% decline in like-for-like sales in the year to February while house prices continued to decline. Housing activity was also at the lowest level since 1978 despite some increase in purchaser interest as credit difficulties persisted.

A wider dollar retracement allowed Sterling to push back above 1.38 in early Europe on Tuesday, but it remained under pressure against the Euro.

UK manufacturing output fell a sharper than expected 2.9% in January which will reinforce the lack of confidence in the industrial sector, especially as it was the steepest quarterly decline on record. There will also be fears over a very sharp GDP downturn for the first quarter of 2009.

From a peak around 1.39, the UK currency weakened sharply to lows below 1.37 against the dollar in US trading before a consolidation around 1.3750. There will be unease that Sterling failed to sustain any gains even when asset prices rallied strongly as confidence remains very weak.

Swiss franc

The dollar dipped to lows below 1.1450 against the franc during Tuesday, but then rallied strongly to highs above 1.16 in New York. The Swiss currency was again blocked close to 1.46 against the Euro and retreated to 1.47 as there was a firm rally in equity prices.

The franc trends will remain correlated strongly with degrees of risk appetite and the franc will find significantly less support if there is a sustained rally in global stock markets

There will also be caution ahead of Thursday's monetary meeting with speculation over National Bank move to quantitative easing likely to unsettle the Swiss currency.



Australian dollar[/U][/B]

There was Australian dollar support close to the 0.63 level with the currency pushing back to challenge the 0.64 region in local trading as the US currency weakened. The NAB business confidence index recorded a recovery which provided some degree of support, although trends in risk appetite will tend to remain dominant.

As equity markets rallied, the Australian currency rallied to above 0.6450 in erratic trading conditions, although the currency was still struggling to gain strong buying support.