Forex Trading

The Euro and the British Pound slipped as much as -0.6% against the US Dollar in overnight trading as a slump in risky assets fueled demand for the safe haven asset du jour. Stocks fell for the first time in six days across Asian exchanges and commodities followed on speculation that persistently sluggish economic growth will curb demand.

Key Overnight Developments

• Japan's Industrial Production Falls to Record Low on Weak Overseas Demand
• Australian Home Sales Rise on Rate Cuts, Government Grants

Critical Levels



The Euro and the British Pound slipped as much as -0.6% against the US Dollar in overnight trading as a slump in risky assets fueled demand for the safe haven asset du jour.

Asia Session Highlights



Japan’s Industrial Product shrank fell -38.4% in the year to February, setting a new record low. The theme at work is a familiar one: dwindling overseas sales are pushing Japanese companies to cut back output, boosting unemployment to put downward pressure on consumer spending and overall economic growth. Later this week, the Tankan survey of business confidence is expected to show sentiment is at the worst in over three decades. Policymakers have scrambled to check the deepening downturn: the Bank of Japan has agreed to expand liquidity-boosting measures while the Finance Minister has pushed for trillions of yen in additional fiscal stimulus. Ironically, the sheer depth of the current malaise may help to spur the recovery. Increasingly dismal economic data has turned risk-averse investors away from the Japanese Yen, sending the currency tumbling by a hefty -12.2% to date from the peak high January. Sustained downward momentum will encourage overseas sales by making Japanese goods cheaper for foreign buyers, breathing new life into the export-dependent economy.

In Australia, HIA New Home Sales grew 3.9% through February, boosted by aggressive interest rate cuts as well as cash handouts to first-time home buyers put in place as part of the Prime Minister Kevin Rudd’s fiscal stimulus package. The Reserve Bank of Australia has trimmed benchmark borrowing costs to 3.25%, a 45-year low, while the government has tripled the available grant for home buyers to A$21,000. Additional monetary stimulus is also expected, with overnight index swaps pricing in 50 basis points in rate cuts over the next 12 months.

Euro Session: What to Expect



Euro Zone Economic Confidence is set to remain at a 24-year record low for the second consecutive month in March. The reading is a composite of several surveys measuring the confidence among consumers as well as the industrial, services, and construction sectors. The result reflects expectations that the current economic downturn will continue in the near to medium term.

On balance, risk trends are likely to emerge as the primary driver of forex price action. Stocks fell for the first time in six days across Asian exchanges as fears of deepening recession returned to the forefront and drove investors back towards safe-haven assets. The MSCI Asia Pacific Index slipped 2%. Comments from Jamie Dimon and Ken Lewis, CEOs of JPMorgan and Bank of America, further weighed on confidence. Dimon said March was “a little tougher” while Lewis said his bank’s lending book was not as good in the last month of the first quarter as the first two. Commodities followed equities lower on speculation that persistently sluggish economic growth will curb demand. US equity index futures are down about 1% ahead of the opening bell in Europe, suggesting the selloff is set to continue and implying the US Dollar is likely to extend recent gains.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Extends Gains as Stocks, Commodities Tumble in Asian Trading (Euro Open)