Forex Trading

The US Dollar slipped -0.5% against major currencies as stock markets advanced in overnight trading on news of a possible new 20 trillion yen fiscal stimulus package. Euro Zone’s trade figures are on tap in European hours, with expectations calling for a -1.9 billion euro deficit in January.

Key Overnight Developments

• ECB’s Trichet Defensive on Sluggish Stimulus in WSJ Interview
• Japan’s FinMin Says Economy Needs Trillions in New Fiscal Stimulus
• US Dollar Sold As Risky Assets Advance, AUD and NZD Lead Gains

Critical Levels



The Euro gapped higher at the weekly trading open and added as much as 0.9% against the US Dollar. The British Pound also advanced against the greenback, rising as much as 0.8%. The Dollar sold off as risky assets rallied on news Japan introduce further fiscal stimulus.

Asia Session Highlights



Speaking in an interview with the Wall Street Journal, European Central Bank President Jean-Claude Trichet was seemingly on the defensive about his reluctance to follow counterparts in the UK and the United States down the path of quantitative easing, snapping “I said clearly that we could decrease [interest rates] again…we will continue to do whatever we think optimizes our own situation.” Most critically, Trichet clearly alluded to allegations that monetary stimulus is not everything it could be amid deepening recession, saying, “One element which has to be taken into account is that the risks of the central banks and the risks of the governments are, in the euro area, clearly separated without combination of risks or blending of responsibilities." This looks like a clear attempt to talk down building popular discontent with the ECB across the euro region. Calls to un-tether national monetary capabilities from Trichet’s measured approach are likely to find greater favor as the downturn hits home for an increasing percentage of Europeans, threatening to turn electorates in the most troubled member states against currency union altogether.

In Japan, Finance Minister Kaoru Yosano said the economy needs a new fiscal stimulus plan, noting that a figure of 20 trillion yen ($209 billion) is “not out of line”. The news encouraged risk appetite across financial markets in overnight trading, pushing the MSCI Asia Pacific Stock Index 1.5% higher and contributing to rallies in the Australian and New Zealand Dollars. US equity index futures are up close to 1.8% ahead of the opening bell in Europe.

Euro Session: What to Expect



The Euro Zone’s seasonally adjusted Trade Balance is set to show a -1.9 billion euro deficit in January, the third consecutive month in negative territory, suggesting trading terms deteriorated -12.8% from a year before. Meanwhile, the external balance has been improving at an accelerating pace in the US: the bilateral trade gap with the European Union narrowed to just -$3.5 billion in December, the smallest monthly shortfall since September 2001 while the overall Current Account gap (the broadest measure of cross-border money flows) shrank to a 5-year low of -$132.8 billion. A widening deficit in the Euro area coupled with a contracting one across the Atlantic implies a net outflow of capital from the currency bloc and into the States, extending our medium-term expectations of EURUSD downside into the long-term outlook.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Lower as Risky Assets Extend Gains on Japanese Stimulus Plans (Euro Open)