Forex Trading

The Euro consolidated gains in overnight trading, oscillating around the 1.29 level. Euro Zone Retail Sales are expected to show the annual pace of decline accelerated to -2.3% in January from -1.5% in the previous month, issuing the eighth consecutive month in negative territory.

Key Overnight Developments

• New Zealand Retail Sales Fall -1.1% in January, Led by Autos
• Euro, British Consolidate Gains in Overnight Trading
• China Says More Stimulus Ready, Questions Safety of US Assets

Critical Levels



The Euro consolidated gains in overnight trading, oscillating around the 1.29 level. The British Pound followed suit, trading sideways in a well-defined 50-pip range above 1.39.

Asia Session Highlights



New Zealand Retail Sales shrank more than economists forecast, falling -1.1% in January to disappoint calls for a more modest -0.1% decline. Motor vehicle sales saw the largest decline, slipping -11.0% from the previous month. In annualized terms, receipts fell -3.96% from -2.81% in the year to December. Coupled with a -17.6% drop in house sales in the year to February, today’s metric suggests a deep aversion to commit to big-ticket purchases. This is arguably the most accurate gauge of consumer sentiment, reflecting uncertainty about future income and a lack of access to lending. Indeed, private sector credit has been shrinking at an annual pace of 4.12% since peaking October 2008 while the unemployment rate has risen to a 5-year high at 5.6%. Private spending is the largest component of overall GDP and the persistence of barriers to sustained improvement in visible (as opposed to stated, as in survey data) consumer confidence suggests deepening recession lies ahead.

China’s Premier Wen Jiabao announced the government was prepared to add to existing fiscal stimulus (worth $915 billion) should it prove insufficient to support the economy through the global economic downturn. Wen told observers that a “full arsenal” of additional measures was ready to be deployed “at anytime” and assured that policymakers had “reserved adequate ammunition” to do so. Wen went on to bluntly question the security of US investments, saying American lawmakers need to “ensure the safety of assets”, musing that “We have lent a huge amount of money to the United States… of course we are concerned about the safety of our assets. To be honest, I am a little bit worried.” Speaking about the exchange rate, Wen said that now country can “pressure” China to appreciate or depreciate its currency.

Euro Session: What to Expect



Euro Zone Retail Sales are expected to show the annual pace of decline accelerated to -2.3% in January from -1.5% in the previous month, issuing the eighth consecutive month in negative territory. Weak spending seems reasonable considering the jobless rate has risen to 8.2%, the highest in over 2 years. The European Commission expects the unemployment to rise to 9.3% through 2009 and 10.2% in 2010, implying long-standing downward pressure on spending and thereby economic growth. 

Futures markets now price in the likelihood that the European Central Bank will respond to the deepening downturn by taking interest rates to 0.75% by the end of April. Although ECB president Trichet has suggested that policymakers are studying “additional non-standard measures”, the bank is treading slower on the path to quantitative easing than the US or the UK where the policy is already in place. On balance, it remains to be seen if this becomes a source of strength or weakness for the Euro. If the global recovery begins sooner rather than later and pulls the regional bloc along for the ride through a rebound in export demand, the single currency will face a smaller risk from rapid re-inflation and become attractive against major counterparts as a store of value. Alternatively, if the crisis is protracted, political pressure to circumvent the ECB and do something at the national level will intensify, threatening the structural integrity of the currency union itself. 

In Switzerland, Producer and Import Prices are set to fall to -1.2% in the year to February, the lowest since September 2002. Threatened with the prospect of deflation, the Swiss National Bank announced the most aggressive stimulus of any major central bank: policy makers cut interest rates to 0.25%, announced quantitative easing, and said they were prepared to intervene in forex markets to prevent appreciation of the Swiss Franc. With the policy equivalent of everything but the kitchen sink now officially thrown at prices, today’s data is likely to be overlooked as moot until further evidence emerges in the months ahead.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Holds at 1.29, EZ Retail Sales to Fall for Eighth Month in January (Euro Open)