Forex Trading

The US Dollar retreated as stocks moved higher on Asian exchanges on optimism fueled by an unexpectedly civil summit of G20 finance ministers, a neutral stance on oil production from OPEC, and a reassuring tone to in US Fed Chairman Ben Bernanke’s interview on CBS’ 60 minutes. The annual pace of Euro Zone inflation is set to rise but its unlikely coming from an economic rebound.

Key Overnight Developments

• UK House Prices Fall at Record Pace for Second Month in March
• G20 Finance Ministers Civil But Short on Substance at UK Summit
• Bernanke Says Recovery to Begin in 2010 Only if Banks are Stabilized
• Euro, British Pound Reverse Early Losses Against the US Dollar

Critical Levels



The Euro pared early losses late into the overnight session, climbing back over 1.29 having tested as low as 1.2834. The British Pound not only recovered from an early -0.8% drop but managed to move into positive territory above the 1.40 level against the US Dollar. The US Dollar retreated as stocks moved higher on Asian exchanges on optimism fueled by unexpected civility at an informal summit of G20 finance ministers, a neutral stance on oil production from OPEC, and a reassuring tone to an interview with US Fed Chairman Ben Bernanke on CBS’ 60 minutes.

Asia Session Highlights



UK House Prices fell -9.0% in the year through March according to Rightmove, an online listing of for-sale properties. The pace of decline is effectively unchanged from the previous month’s record-setting -9.1%, suggesting the real estate slump that has eroded household wealth and cut consumption is showing now signs of abating. Market research agency GfK has predicted that a staggering 40% of British mortgage holders to be in negative equity by the end of this year, compounding already significant downward pressure on spending from rising unemployment with disastrous results for economic growth. A survey conducted by Bloomberg puts the output drop at -2.7% through 2009 and the International Monetary fund reckons the UK will face the deepest recession among the G7 nations.

An informal summit of finance ministers from the G20 struck a conciliatory tone after US Treasury Secretary Tim Geithner ignited tempers by calling on Europe to do more in fiscal stimulus to help support US efforts to revive global growth, specifying that governments should look to commit 2% of GDP in 2009 and 2010 in spending and tax cuts. The communiqué following the meeting introduced a “twin-track” approach of immediate stimulus and financial system repair in conjunction with medium-term goals of strengthening regulatory oversight. Importantly, the document seemed big on generalities, espousing such admirable intangibles as taking “whatever action is necessary until growth is restored” but offering little in terms of concrete policy prescriptions. This meeting was designed to set the stage for a sit-down of the G20 heads of state in April.

US Federal Reserve Chairman Ben Bernanke gave his first interview since taking up his post to CBS’ 60 Minutes. The Fed chief said that economic growth will likely find a bottom this year and begin to recover in 2010. However, Bernanke cautioned that, “recovery is not going to happen until the financial markets and the banks are stabilized.” The chairman indentified a “lack of political will” as the biggest threat to putting the economy back on track.

The Organization of Petroleum Exporting Countries (OPEC) decided to keep production quotes unchanged, sending the price of crude oil tumbling to test as low as $43.85/barrel.

Euro Session: What to Expect



The Euro Zone Consumer Price Index is set to show that the annual pace of inflation rose to 1.2% in February from 1.1% in the previous month, the first tick higher since price growth peaked at 4% in July 2008. Indicators measuring business and consumer sentiment extended months of losses to set new all-time lows in the same period, so it seems unlikely that this inflation will be of the benign variety that comes with renewing vigor in economic activity. Rather, rapid depreciation may be the reason for the higher CPI reading. On average, the Euro has fallen 15.1% against the currencies of the regional bloc’s top five import partners, raising the cost of foreign-made goods for consumers on the continent. The implications of this trend could be quite ominous considering the pace of price growth is rising even as the economy sinks deeper into recession, limiting the ability of the European Central Bank stimulate growth through monetary policy for fear of letting inflation skyrocket. Where some countries are worried about deflation (falling prices), it seems the Euro Zone could see stagflation (rising prices and falling output) as a real threat in the near term.

Separately, fourth-quarter Euro Zone Employment figures are set for release. The jobless rate grew 6.6% to the highest in over 2 years through the last three months of 2008, raising the likelihood of a down print for today’s release.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Lower as Stocks Rally in Asia, Higher CPI Not Good News for Euro Zone