Forex Trading

The Euro and the British Pound rose against the US Dollar as stocks gained for the first in three days in Asian trading, weighing on the safe-haven asset du jour. April’s Euro Zone Economic Confidence is on tap in the forthcoming session, with expectations calling for the metric to rise for the first time in 11 months.

Key Overnight Developments

• New Zealand Annual Trade Deficit Shrinks on Falling Currency
• NZ Business Confidence Negative for Sixth Straight Month
• Euro, British Pound Follow Stocks Higher Against US Dollar

Critical Levels



The Euro added 0.5% against the US Dollar to test above the 1.32 level late into the session. The British Pound followed suit, adding 0.6% against the greenback. USD sold off as stocks rose for the first in three days in Asian trading.

Asia Session Highlights



New Zealand’s Trade Balance deficit narrowed to print at –NZ$4.8 billion in the year to March, down from –NZ$5.2 billion in the previous month. Exports grew at an annualized rate of 17.7%, outpacing a 6.9% rise in imports as the New Zealand dollar fell -18.25% in the 12 months from March 2008 to boost foreigners’ purchasing power of the antipodean nation’s products. The trade gap is likely to contract further if a downward reversal in risky assets continues to weigh on the exchange rate. An average of the New Zealand Dollar’s value against a trade-weighted basket of global currencies is now 91% correlated with the MSCI World Stock Index.

A separate report showed NBNZ Business Confidence jumped to -14.5 in April from -39.3 in the previous month. While the result is an improvement, the print in negative territory continues to suggest that a majority of firms (albeit a narrowing one) surveyed for the study are expecting economic conditions to deteriorate over the next 12 months. Most notably, the NBNZ gauge has been oscillating below the zero level for the better part of 7 years (aside from one outlying uptick in September 2008). The annual pace of GDP growth has trended lower for the majority of the same period, suggesting any connection between the uptick and an end to the current downturn is dubious at best.

In Australia, the Housing Industry Association reported that New Home Sales grew 4.2% in March, marking a significant slowdown from the 7.8% recorded in the previous month. We had anticipated the result in our Australian Dollar Weekly Forecast, noting that vehicle sales fell at the fastest pace in 9 years during the same period, reflecting Australian consumers’ continued hesitation to commit to big-ticket purchases. This seems logical considering the deepening economic downturn has pushed the unemployment rate to a 5-year high of 5.7%, weighing on disposable incomes, while access to borrowing has dwindled to unprecedented levels.

Euro Session: What to Expect



Euro Zone Economic Confidence is expected to rise for the first time in 11 months, rebounding from a record low at 64.6 to print at 65.6 in April. The metric is a weighted composite of five sector-specific sentiment surveys including Industrial Confidence (40%), Service Confidence (30%), Consumer Confidence (20%), Construction Confidence (5%), and the Retail Trade Confidence Indicator (5%). Improvements are expected across the various components and are likely linked to record-low interest rates and a slew of government spending packages put in place across the currency bloc. The ability of these measures to spur a sustainable return to economic growth and thereby encourage long-term strength in the Euro looks questionable at best, however. Bruegel, a think tank, has estimated that European countries will spend an average of 0.9% of GDP on fiscal stimulus, as compared to 2% being spent in the US. On the monetary front, the European Central Bank seems intent on continued waffling, signaling rate cuts will end with borrowing costs at 1% and seemingly failing to reach a workable consensus on quantitative easing. This half-hearted approach means that private demand will likely be slow to step in to pick up the baton after the government’s boost is exhausted, bolstering expectations for a comparatively slower recovery.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro, British Pound Follow Stocks Higher Against US Dollar (Euro Open)