Forex Trading

The Euro advanced to re-test above 1.30 to the US Dollar in overnight trading as capital flowed into risky assets and pushed stocks higher across most Asian exchanges. The single currency moved higher for 5 consecutive days, adding over 3%. The bulls’ resolve will be tested in European hours as the ZEW survey of investor confidence is set to drop for the first time in four months.

Key Overnight Developments

• Japan's Tertiary Index Unexpectedly Higher on IT Demand
• Australia Has “Flexibility” To Cut Interest Rates Again, Says Central Bank
• Euro, British Pound Follow Risky Assets Higher Against US Dollar

Critical Levels



The Euro and British Pound both pushed higher against the US Dollar in overnight trading as capital flowed into risky assets and pushed stocks higher across most Asian exchanges. The single currency is working to hold above the 1.30 mark while sterling is consolidating above 1.41.

Asia Session Highlights



Japan’s Tertiary Index rose 0.4% in January after two consecutive declines in the previous two months. Information and communication services demand led the reading higher. Importantly, the trend continues to point lower with the metric down -3.9% in annual terms. At this point it remains premature to call this a rebound: dwindling overseas sales are continuing to push Japanese companies to cut back production capacity and boosting unemployment to put downward pressure on consumption, including that of services. Some hope may lay ahead if the recent decline in the Japanese Yen is to be sustained, helping to encourage overseas sales by making Japanese goods cheaper for foreign buyers. The currency has slipped -11.3% to date since topping out in January.

Minutes from the last policy meeting of the Reserve Bank of Australia showed policymakers opted to keep rates on hold in March to access the impact of existing fiscal and monetary measures but maintained that there as scope for further easing. The bank said the near term economic outlook remains “weak” though credit demand seemed to be responding to rate reductions and noted it has “adequate flexibility” to lower borrowing costs again. 

Euro Session: What to Expect



Germany’s ZEW Survey of investor sentiment is expected to drop to -8.0 in March from -5.8 in the previous month, marking the first decline in four months. The measure jumped the most since 1993 in February on hopes that the twin offensives from monetary and fiscal authorities will kick-start growth by the end of this year. Since then, the economic data flow has been less than encouraging: the unemployment rate rose to the highest in 9 months, retail sales fell twice as much as was expected, and the current account surplus shrank to the narrowest in over 3 years as exports tumbled. Meanwhile, the European Central Bank has sharply revised its projections for economic growth and inflation, saying output could shrink as much as -3.2% this year while the pace of price growth falls as low as 0.1%. The analogous reading for the broader Euro Zone is expected to print at -12.0 in March, down from -8.7 in February.

In Switzerland, the State Secretariat for Economic Affairs (SECO) is set to publish the March revision of the government’s economic forecast for 2009. The December issue of the publication cut growth expectations from 1.3% to -0.8% for the current year. A survey of economists conducted by Bloomberg calls for a -1.0% contraction.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Rally Threatened with Investor Confidence to See First Drop in Four Months (Euro Open)