Forex Trading

The US Dollar slipped as much -0.3% in overnight trading as Asian stock exchanges followed Wall St higher with the MSCI Asia index adding 2.75% ahead of the opening bell in Europe. The UK Consumer Price Index as well as the ZEW Survey of investor confidence for Germany and the Euro Zone are on tap ahead.

Key Overnight Developments

• Meeting Minutes Show RBA Sees Stimulus, China Will Support Demand
• US Dollar Declines as Stocks Add Nearly 3% in Asian Trading

Critical Levels



The Euro extended gains in overnight trading, testing as high as 1.3579 against the US Dollar. The British Pound oscillated in a choppy 50-pip range below 1.5350. Broadly, the US Dollar slipped as much -0.3% as Asian stock exchanges followed Wall St higher with the MSCI Asia index adding 2.75% ahead of the opening bell in Europe.

Asia Session Highlights



Minutes from the last meeting of the Reserve Bank of Australia echoed policymakers’ initial optimism, noting signs that “the economic stimulus that had been applied was supporting demand.” The decision to hold rates was not uncontested, however, and some RBA members did suggest that “monetary policy could be eased further at this stage.” The Reserve Bank also reiterated their view that resurgent demand in China will boost Australia’s export sector and bolster the economy, though some on the policy-setting Board questioned the sustainability of such developments if the boost comes from the Beijing government’s stockpiling of coal and iron ore rather than recovering private-sector demand. Australian Secretary to the Treasury Ken Henry also touted the government’s action in a separate speech, saying the unemployment rate could have reached as high as 10% without the government's spending initiative. Separately, RBA Governor Glenn Stevens said in a speech in Sydney that Australia and Canada will emerge “in reasonable shape” from the global downturn.

Euro Session: What to Expect



The UK Consumer Price Index is expected to see the annual pace of inflation slowed to 2.4% in April, the lowest since January 2008. Last week, the Bank of England’s quarterly inflation report revealed that policymakers expect inflation to remain below the target 2% until 2012 as the economy takes a slow path to recovery from the current downturn. The British Pound dropped sharply on the announcement, suggesting the fallout in price growth may already be priced into the exchange rate. That said, the Pound did see buying interest in as stock markets rebounded in New York hours to gain 1.1% against the US Dollar and tonight’s release could serve to undermine the sustainability of the upswing by shifting the focus from risk trends back to economic fundamentals.

Germany’s ZEW Survey of investor confidence is expected to print at the highest level in nearly 2 years in May, rising to 20 from 13 in the previous month. However, improvements in the metric are unlikely to offer much near-term support to the single currency: the ZEW reflects the forward-looking perspective of the survey respondents, meaning the reading tends to lead the Euro by a significant margin such that the trend in the Expectations component inverts major tops and bottoms in the exchange rate. Specifically, the ZEW began to trend lower in the beginning of 2006 and bottomed out in July of last year; the same end-points mark the beginning of the last major uptrend in EURUSD that saw the pair test record highs above 1.60. If the same dynamic is to continue to hold, traders can expect the European unit to set a bottom as the ZEW tops out, a scenario that seems unlikely for the time being considering how much ground remains to be covered before the economy regains its footing.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar Extends Losses as Stocks Advance in Asian Trading (Euro Open)