Forex News: Eur soars high against the Greenback

Forex News:

On Friday the Euro strengthened against the US Dollar and the Pound after EU leaders agreed on a financial aid package for Greece. The deal includes funds from the International Monetary Fund and totals around 22bn Euros which could be made available to Greece should the country have difficulty borrowing money to service its high level of debt.

Against the US Dollar the Euro rose by more than one cent to $1.3422 before falling back slightly to close trading at $1.3414 before the start of the weekend. It rose around two-fifths of a cent against Sterling to close trading at GBP 0.9003 in the forex online market.

On Wednesday the Euro had fallen to a ten month low against the US Dollar amid fears a deal would not be reached after Germany indicated Greece did not need assistance. This followed close on the heels of a credit downgrade for Portugal which further weakened the currency.

The deal may allay fears that the problems which Greece has experienced could spread out to affect other countries in the Euro Zone. Following the announcement that a deal had been reached yields, that is the interest rate investors are paid on loans to the government, on Greek bonds fell slightly, an indication that investors viewed them as slightly less risky. Analysts feel the real test will come when Greece hold its next sale of government bonds which will almost certainly happen in the coming weeks. This will be a crucial test for Greece as well as setting the tone for what is to come in the Euro Zone.

According to Moody’s credit rating agency, disagreement among Euro Zone partners could undermine the deal: “The key credit question is whether market confidence will be strengthened by the support package, or whether it will be weakened by the contentious conditions under which this package was agreed.”

Further concern that the EU’s rescue plan could fail arises from concerns that EU leaders may have underestimated how great the problems facing the Euro Zone are. This particular plan was drawn up in response to the Greek crisis, however there are many other members who are struggling, most notably Ireland, Spain, Portugal and Italy. Greek Prime Minister George Papandreou must now prove that he can keep the nations finances afloat as failure to do so could spark a fresh crisis and trigger the use of the aid package. Looking forward the Euro will remain heavily dependent on smooth market conditions in the short term to immediate future.

Across the water in the US, Friday saw the news that the US GDP was revised downward to an annualized rate of 5.6% for the last quarter of 2009. It was revised down from 5.9% according to figures released by the US Commerce Department.

From http://forextradingguru.blogspot.com

Canadian Economy making a moderate recovery

Forex News:

Last week the Euro fell against 15 of its 16 major peers as EU leaders appeared unable to agree a cohesive plan to bailout Greece. On Friday it tumbled 0.60% against the US Dollar closing trading at $1.3528. The previous day it had fallen as much as 0.93% against the USD.

Late last week Greek Prime Minister George Papandreou issued EU leaders with a one week deadline to come up with a concrete rescue plan for Greece and challenged Germany to abandon its doubts about rescue plans. Papandreou said he may turn to the IMF to overcome Greece’s debt crisis unless leaders agree to set up a lending facility before an EU summit due to be held in Brussels on March 25th and 26th. The EU commission President Jose Manuel Barrosa has urged immediate action on the matter and said the EU should spell out its rescue plan at the summit later this week.

Friday saw the release of Germany’s producer price index which remained unchanged in February after increasing by 0.8% in January. Market expectations had been for a 0.1% increase. Year-on-year Germany’s PPI fell 2.9% in February, versus a 3.4% decline in January.

Canada’s core inflation rate unexpectedly rose last month on higher costs for automobile insurance and accommodation during the Vancouver Winter Olympics. The increase will pressure the central bank to raise interest rates and drive the value of the Loonie higher. The Canadian economy is accelerating out of last year’s recession with retail sales also rising more than expected. Recent manufacturing reports also indicated rapid economic growth.

The speed of the rebound may change how fast Governor Mark Carney decides to raise the benchmark interest rate from its current record low level of 0.25%. He had pledged to keep the interest rate in place through June unless the inflationary outlook changed. The banks next interest rate decision is scheduled for April 20th.

On a monthly basis, core consumer prices rose 0.7%, the fastest since November 2008 and overall inflation was up 0.4%. Economists had predicted the monthly rates would be 0.3% for both total and core inflation. Retail sales rose 0.7% in January, as consumers stocked up on home improvement supplies before a federal tax credit expired. Wholesale sales rose at the fastest pace in three years in January and factory sales gained four times what economists had predicted.

During the middle of last week in the forex online market the Loonie traded within one cent parity with its American counterpart before dropping back 0.23% on Thursday as crude oil prices, the country’s largest export fell. On Friday the Loonie opened at USD $1.0137 and fell back a further 0.31% to close trading at USD $1.0169.

From http://forextradingguru.blogspot.com

Impact of the US National Capital Long Term Purchases report on the Greenback

Forex News:

The US National Capital Long Term Purchases report was published yesterday. This indicator represents the difference between foreign investments in the US and US investments abroad and demonstrates foreign confidence in the US economy. Figures showed that Net foreign purchases of long-term securities slowed markedly in January according to the Treasury Department. Total holdings of equities, notes and bonds increased a net $19.1 billion in January. This is down from $63.3 billion in the previous month. The figure had leaped to $126 billion two months ago, but was then cut to half.

The Dollar in the forex online market closed down significantly against the GBP in the wake of this news. It started the day trading at 1.5774 against the Pound but slid to 1.5044 at the close of the day. It also dropped against the Euro, although not as significantly, opening trading at 1.3762 before going on to close at 1.3758.

Elsewhere in the US manufacturing in the New York region expanded in March for an eighth straight month, indicating factories are sustaining production and lifting the U.S. economy. The index plunged in December but has since recovered. The report showed orders, sales and employment increased in March, a sign that manufacturing gains may last for months and help spur the rest of the economy. The Empire State index is of interest to investors and economists primarily because it is seen as an early indicator of what the Institute for Supply Management’s March national factory survey due out in two weeks may show. In February, the ISM manufacturing index inched lower to 56.5 but continued to point to solid growth in the factory sector.

Industrial production unexpectedly rose in February, due in part to gains in demand for computers and semiconductors that signal the pickup in U.S. business investment is being sustained. Production climbed 0.1%, the eighth consecutive increase, as utility use and mining increased according to figures from the Federal Reserve. Capacity utilization or the proportion of plants in use, climbed to 72.7% from 72.5%. The gauge averaged 80% over the past two decades and suggests inflation will remain low. The amount of spare capacity is among reasons analysts anticipate Fed policy makers will reiterate a pledge to keep interest rates low. The US Federal Reserve is expected to hold interest rates near zero when they are announced later today.

Before the Fed Rate is announced the Building Permits and Housing Starts figures for the month of February are due to be announced. The housing sector had a big contribution to the downturn in the global economy and is now showing signs of a slight recovery. Building permits dropped to 620K in January, they are expected to be down to 619K; housing starts are expected to drop from 590K to 570K.

From http://forextradingguru.blogspot.com

Britain’s Trade deficit widens

Forex News:

Britain’s goods trade deficit with the rest of the world unexpectedly swelled in January to reach its widest level since August 2008, fueling concerns about the strength of the country’s broader economic recovery. Yesterday, the Office for National Statistics reported that Britain’s trade deficit widened to 7.987 billion pounds from 7.010 billion in December, well above market expectations of 7 billion, as lower sales of chemicals and other commodities prompted a steep slump in exports. This disappointing figure will most likely fuel policy maker’s concerns that the sharp depreciation in the value of the Pound has not led to the expected increase in exports. Bank of England policy maker Kate Barker said yesterday that Britain’s economy has shown a “disappointing” response to the weakness of the pound, which has fallen about a quarter in the past three years on a trade-weighted basis. Government Officials want gross domestic product to refocus on exporting as they try to entrench Britain’s recovery. The deterioration in the global trade balance was the direct result of a 6.9% fall in exports, the biggest decrease since July 2006; while there was speculation that the Britain’s unseasonably harsh winter could have hampered the movement of goods, according to officials there was no firm evidence to support this theory. Imports fell just 1.6%.

Following the release of this disappointing news, the GBP slipped as much as 0.2% against the U.S Dollar and was trading down 0.9% on the day at $1.4957. After closing at $1.49991 yesterday, the Sterling plunged another 0.54% this morning to touch on $1.49176 in the forex online market.

Later this morning (930GMT), the Office for National Statistics will announce the U.K’s manufacturing production for January. After increasing 0.9% between November and December of last year, the growth in manufacturing production is expected to slow, with the market expecting a rise of 0.3% between December and January.

Also later today (1900GMT), the U.S Treasury Department will release the Federal Budget Balance. While it is no secret that the U.S government is in serious debt, last month the size of the budget fell to a more acceptable level of -42.6B. This month, the market predicts that the deficit will to surge back up to 207.5B, weighing heavily on the value of the U.S dollar.

Tomorrow, both the US and Canada will simultaneously release their Trade Balance. This double-feature release always triggers action in USD/CAD. The American deficit is expected to remain high at around 40 billion, while Canada is expected to turn from a deficit of 0.2 to a surplus of 0.4 billion.

Later this afternoon (1800GMT), the European Central Bank president Jean-Claude Trichet will speak. As head of the ECB, which controls short term interest rates, Trichet has more influence over the Euro’s value than any other person, and so his words will be carefully listened to. Today’s speech, held at the the inauguration ceremony of the Language of Money in Frankfurt, will be followed by a second, held at Institute of Economic Policy Research in Stanford, this Friday.

From http://forextradingguru.blogspot.com

In Anticipation of BOE and ECB’s rate decission

Forex News:

Early this morning, Germany released its monthly retail sales report. Despite a predicted drop of 0.5%, retail sales were unexpectedly stable for January, while December gains were revised upwards modestly- fueling hopes that consumer supported recovery may emerge within the coming months. This will be followed by the publication of the entire Euro Zone’s monthly retail sales for January, predicted to show a decrease of 0.3% from the previous month. With no other important news coming out for the rest of the day, investors will turn their attention to tomorrow’s impeding ECB rate announcement. Once again, Jean-Claude Trichet, president of the ECB, is expected to maintain the minimum bid rate at its current record low level of 1.0%.

The ECB’s rate decision will be preceded the Bank of England’s announcement of its overnight rate. The BoE is expected to keep its key lending rate at its current record low level, despite signs that Britain is emerging from the recession at a faster pace than previously anticipated. While the country’s GDP may have grown 0.3% (revised) for the fourth quarter of last year, analysts predict that it is highly unlikely that the central bank will opt to exit its “easy” monetary policy so quickly.

Yesterday, the Sterling plunged to a new 10 month low against the greenback in the forex online market as speculation continued to increase that neither the Labor nor the Conservative party would win an outright majority in Parliament in the coming June election- obstructing efforts to cut the country’s historically high budget deficit. After slipping 1.045% on Monday (at one point diving a record 3% to a $1.4784, its lowest level since April 2009), the GBP continued to fall against its American counterpart yesterday – deprecating an additional 0.2314%, to close at $1.49607.

Despite increasing chances of a “hung” parliament in addition to a plummeting currency, U.K consumer confidence jumped in February to a two-year high. The index of consumer sentiment increased 6 points from the previous month, to a new level of 80.

Yesterday, the U.K released its construction PMI, showing a fall from its previous level of 48.6 to 48.5 (a number greater than 50.0 indicates expansion, while number below shows contraction). Early this morning (930GMT), the U.K will release its Service PMI- while this report is the last PMI for the week, it is the most important. The service sector, which includes the financial sector, was improving up until last month. After falling to 54.5, analysts predict a slight increase of 0.5 points this month, to a new level of 55.0.

The U.S dollar weakened across the board, falling against 15 of its 16 major currency counterparts, following the release of the Bank of Dallas Fed Chairman’s statement that borrowing costs should continue to remain low until the economy picks up- which according to him “won’t happen for some time”.

Later today (1315GMT), the U.S will release its ADP Non-Farm Employment Change. While generally considered a predictive index for Friday’s highly anticipated Change in Non-Farm Payrolls, the ADP is expected to show a drop of 15K. With Payrolls have declined in 24 out of the past 25 months and economists are predicting another decline of 40,000 in February.

From http://forextradingguru.blogspot.com