Forex Trading

The US Dollar gained on demand for safe-haven assets as stocks fell across Asian exchanges. Overnight data saw Westpac forecast that Australian interest rates will head lower in the second half of the year as the economy sinks into recession. Germany’s Wholesale Price Index is on tap in European hours.

Key Overnight Developments

• UK House Prices Improved in March, Says RICS
• Australian Leading Index Drops to Record Low, Signals Recession
• US Dollar Higher as Stocks Slip on US Retail Sales, Higher Yen

Critical Levels



The Euro moved lower in overnight trading, slipping -0.3% to test the bottom of the 1.3230-1.33 range that has confined price action over the past 24 hours. The British Pound also slipped against the greenback, inching deeper below 1.49 to test as low as 1.4858. The US Dollar gained on demand for safe-haven assets as stocks fell across Asian exchanges. Investors hopeful of a US-led rebound in global demand were discouraged by disappointing Retail Sales data while a stronger Yen weighed on export issues.

Asia Session Highlights



UK house prices improved in March according to RICS, a private organization for property sector professionals. The RICS House Price Balance, a survey of real estate agents and surveyors, showed 73% of respondents reported price declines, an improvement over the -78% result registered in February. Today’s result marks the best reading in 13 months. Still, it is important to note that the metric has been trending higher since April of last year even as the credit crisis intensified and the unemployment rate pushed higher, suggesting a substantial lag between higher readings in the RICS balance and visible improvements in consumers’ buying power. To that effect, it would be premature to take today’s reading as indicative of a sustainable rebound in demand for big-ticket items, a development that would be reflective of buyers’ expectations that the economy will improve in the near future. Indeed, consumer confidence matched a record low in March while NIESR, a think tank, said the economy shrank 1.5% in the first quarter and could “continue to decline for up to another year.”

The Westpac Leading Index fell for the sixth consecutive month in February to bring the annual pace of decline to -5.1%, the worst since 1982. Westpac chief economist Bill Evans said the rate of contraction is “truly remarkable”, adding that the index signals “the Australian economy will enter a recession.” Although the Reserve Bank of Australia has signaled it is done cutting interest rates, Evans said the decision to hold off on easing 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.”

Euro Session: What to Expect



Germany’s Wholesale Price Index is expected to shrink for the 8th consecutive month in March, showing the annual pace of decline accelerated to -0.3% from -0.1% in the preceding month. The metric measures the prices retailers pay to producers for finished goods, with continued weakness likely to spill over into consumer inflation as stores pass on lower wholesale costs through discounts on the final price tag. The Consumer Price Index fell to the lowest in a decade in the year to March. Despite tumbling prices and deepening recession across the Euro region, the European Central Bank cut interest rates less than economists expected earlier this month, although bank president Trichet did say that rates had not reached “the lowest limit” and revealed that “the Governing Council intends to decide on further non-standard measures at our next monetary policy meeting”.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Higher as Stocks Slip in Asian Trading, Fueling Demand for Safety (Euro Open)