Forex Trading

The US Dollar may rise as an uneventful economic calendar is likely to yield to risk sentiment as the main driver for forex price action with US equity index futures trading down 1% ahead of the opening bell in Europe. French and Italian industrial production figures are on tap, with expectations calling for the fourth consecutive month of double digit declines in the year to March.

Key Overnight Developments

• New Zealand House Prices Fall for Tenth Month in April
• Australian Business Confidence ‘Stabilized Significantly’ Says NAB

Critical Levels



The Euro traded sideways in a well-defined range above 1.3615 in overnight hours. The British Pound followed suit, oscillating in a 50-pip band above the 1.5200 level.

Asia Session Highlights



New Zealand House Prices (calculated based on quoted home values) fell for the tenth consecutive month in April, shrinking at an annual pace of -9.2%. The reading is within a hair of March’s record -9.3% decline, the largest in nearly 4 years. Deepening recession, rising unemployment, and scarce credit access have kept buyers away from big-ticket purchases, sending property values lower. For those that already own a home, the decline amounts to a negative wealth effect, eroding the value of one’s assets to discourage spending and thereby keep a tight lid on economic growth. The Reserve Bank of New Zealand has tried to encourage demand by cutting interest rates to a record-low 2.5% at the last policy meeting and explicitly stated that they “consider it appropriate to provide further policy stimulus to the economy [and] expect to keep [interest rates] at or below the current level through until the latter part of 2010.” The economy is expected to shrink -3.2% through 2009.

In Australia, April’s Business Confidence was little changed from the previous month’s result, printing at -14 versus -13 in March according to National Australia Bank. The metric set a record low at -32 in January. NAB chief economist Alan Oster said that “confidence levels have stabilized significantly” and speculated that “a moderate return to [economic] growth” was possible if sentiment holds at current levels through the second quarter. Still, Oster remained cautious, noting that “future expectations [are] at record lows” and forecasting that the jobless rate would rise to 6.75% this year and reach around 8% by 2010 despite a notable upswing in April’s data. For its part, the Reserve Bank of Australia has argued that existing monetary and fiscal policy measures will adequately support economic recovery.

Euro Session: What to Expect



An uneventful economic calendar is likely to yield to risk sentiment as the main driver for forex price action in European hours. Although Asian stock markets seesawed overnight, US equity index futures headed convincingly lower, trading down 1%. If risk appetite abates in a meaningful way, traders could see upside in safety-linked currencies such as the US Dollar and the Japanese Yen.

Scanning the data docket, signs of deepening recession continue to abound in the Euro Zone. French Industrial and Manufacturing Production readings are set to issue the fourth consecutive month of double digit declines, shrinking -14.6% and -16.1% respectively in the year to March. Meanwhile, Italian Industrial Production is expected to shed -21.2% in the same period. Output has dwindled as the global economic downturn weighed on overseas demand. Exports contribute over 40% to the Euro Zone’s overall economic growth, with other factors like investment and private consumption indirectly to foreign demand. Indeed, the current fallout has led companies to scale back investment and cut labor costs, boosting unemployment and weighing on consumption. This bolsters expectations that the currency bloc will trail the US in recovering from current turmoil: most US economic growth is derived from domestic factors, while the Euro region will need to wait for the second-round effects of a recovery among its top trading partners to see a lasting return to positive growth.

Written by Ilya Spivak, Currency Analyst
Article Source - US Dollar May Rise as Stock Index Futures Point to a Reversal in Risk Appetite (Euro Open)