Forex Trading

The British Pound may see volatility in European trading hours with the unemployment rate set to rise to 4.6% in March, the highest in 11 years. Minutes from the last Bank of England policy meeting are also on tap for release. Overnight data saw Japan’s Trade Balance shrink 99% in the year to March while Australia’s CPI fell more than expected in the first quarter.

Key Overnight Developments

• Japan's Trade Balance Shrank 99% in Year to March as Exports Tumbled
• Australian Inflation Falls to Slowest in 18 Months as Recession Deepens

Critical Levels



The Euro extended losses in overnight trading, slipping as much as -0.3% against the US Dollar. The British Pound followed suit, testing as low as 1.4610 to the greenback.

Asia Session Highlights



Japan’s Trade Balance yielded a narrower monthly deficit than economists expected, printing at 97.1 trillion yen in March versus expectations of a -250.7 trillion shortfall. Still, the reading is far from encouraging, revealing trading terms tumbled by a whopping 99% from a year before. The pattern is a familiar one: dwindling overseas sales have pushed firms to scale back capacity, boosting unemployment and weighing on consumer spending to keep downward pressure on overall growth and sink Japan into the worst economic downturn since the Second World War. Indeed, exports shrank -45.6% in the year to March, a reading within a hair of last month’s record-setting -49.4% annual decline. As we suggested in our Weekly Trading Forecast, the release had little immediate impact on Yen price action because the forces behind the dour data have been priced into the exchange rate for some months now, with the Japanese unit supported by a reinvigorated link to equity markets.

In Australia, the Consumer Price Index showed the annual pace of inflation fell to 2.5% in the year to the first quarter, the slowest in 18 months. A report released earlier this week showed that Producer Prices unexpectedly fell during the same period, alluding to continue downward pressure on consumer inflation in the months ahead. Although the central bank has signaled the easing cycle is over, Westpac Banking Corp’s chief economist Bill Evans said last week the decision to hold off lowering interest rates now is likely a tactical one given the confidence boost typically seen after such actions: “We expect the bank will see the need to have ample capacity to be cutting rates through the second half of 2009…The economic case for cutting rates is undeniable.” Indeed, RBA Governor Glenn Stevens confirmed yesterday that the Australian economy was in recession but expressed confidence that his country will weather the downturn “better than most” citing increased Chinese demand for the antipodean country’s goods in the coming months.

Euro Session: What to Expect



Minutes from the April 9th policy meeting of the Bank of England headline the economic calendar in European hours. The rate decision itself was generally uneventful: policymakers kept rates unchanged at 0.5% and committed to continue quantitative easing (QE), all as expected. Still, as noted by DailyFX Strategist Terri Belkas, the release could spark volatility if it is revealed that policymakers are considering expanding or making significant changes to the existing 75 billion pound QE program. Further, the environment surrounding the release could prove to be a catalyst for downward pressure on the Pound: expectations call for Jobless Claims to rise 116k in March, the 14th consecutive monthly increase, to bring the Claimant Count (unemployment rate) to an 11-year high at 4.6%. If the minutes from the BOE meeting prove to be as bland as the original rate announcement, traders may punish the pound for insufficient urgency in the central bank’s policy response amid deepening recession.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound in Play with Unemployment to Hit 11-Year High as Recession Deepens (Euro Open)