Forex Trading

Market participants are eagerly awaiting key data pieces due be released today. The European Central Bank is expected to cut Interest Rates by 50 basis points and weekly U.S. unemployment numbers are predicted to be high. These two events will be the main drivers of currencies in the forex market today.



USD - U.S. Unemployment Claims on Tap

The U.S. Dollar weakened during yesterday's trading session, correcting the sharp gains against the EUR and GBP seen last week as steep job losses in the private sector rekindled fears of a prolonged U.S. recession. After yesterday, the USD fell slightly against the EUR, pushing the oft-traded currency pair to 1.3270. The Dollar experienced similar behavior against the Pound and closed at 1.4490.

The ADP Non-Farm Employment Change released yesterday showed an additional 742K individuals lost their jobs in the U.S during the month of March. The number was far higher than economists had previously forecasted. This is indeed another sign that any economic recovery in the U.S. will be slow to commence.

Another leading indicator released yesterday was U.S. Pending Home Sales. This number handedly beat market expectations but failed to provide strength to the Dollar as investors may be waiting for key data due to be released today to implement their trading strategies.

As for today, the leading U.S. data will be the Unemployment Claims. The survey is expected to show 649K individuals have filed for unemployment insurance for the first time during the past week. Such a result will be a direct continuation of the recent troublesome figures delivered lately from the U.S. economy and is threatening to hurt the USD. Traders should follow it closely, as any crucial information might ignite a new trend in the market.

EUR - EUR Fluctuates as ECB Interest Rate Decision due Today

The EUR finished yesterday's trading session with mixed results versus the major currencies. The 15-nation currency saw moderate gains versus the USD. Versus the JPY, the Euro-Zone currency range-traded throughout most of the day, as much of the market data from yesterday was focused on the greenback.

Retail Sales in Germany unexpectedly fell in February and the rate of unemployment rose, fueling fears about job security. As a result, European companies have stepped up efforts to reduce production and cut jobs as the worst global slump since World War II. German business confidence fell to the lowest level in more than 26 years in March and unemployment increased for a fifth straight month.

As a result, the ECB is expected to cut its Interest Rates today while other governments embark on state-sponsored investment programs. The market may view the ECB action of a rate cut as a step to restore investor confidence, and to mitigate the economic fallout from the financial crisis.

In the last year, the ECB has been less aggressive than the Federal Reserve in monetary policy and as the financial crisis has worsened in Europe, the EUR has steadily fallen against the USD. However, the ECB plans for cutting Interest Rates might have an effect on the Euro-Zone economy and could reassure the European banking sector that they could rely on the ECB to keep liquidity circulating and also bring more confidence to the markets.

JPY - Yen Experiences Mixed Results against Major Currencies

Japan's business confidence hit a record low after slumping global demand has halved the nation's exports, pushing the country into one of its worst recessions. Rising unemployment and falling spending data a day earlier already showed the worrisome trend that the drop in external demand was affecting Japan's domestic economy. Analysts expect the Japanese economy to continue to contract in the first half of this year, lending a record five straight quarters of negative economic growth.

Today, the JPY will be absent from the economic calendar, however, traders should follow overseas events in order to determine the JPY's direction for today. Special attention should be given to the ECB Press Conference and U.S. Unemployment Claims figure that will be published at 11:45 and 12:30 GMT respectively, and will be today's leading publications that could affect the Yen's crosses.

OIL - Crude Oil Sinks below $49 a Barrel

Oil prices fell slightly during yesterday's trading session and closed below $49 a barrel as more signs of a sick economy fueled worries about energy consumption. The International Energy Agency (IEA) said that Crude Oil inventories rose to 359.4 million barrels, which is 15.5% above levels from one year ago, the highest level since 1993. Some analysts have said Crude Oil is waiting to break out from it's price slump but the negative inventories data may have held that rally in check..

Oil prices rose sharply last month from $35 to above $54 taking their cue from a rally in equity markets. But a new sign of a prolonged recession which has crushed energy demand around the world is again pushing prices lower below the psychological price level of $50.

Article Source - EUR Interest Rate Decision Due Today

The Euro is likely to see significant selling pressure if today’s interest rate announcement sees the European Central Bank maintain a reluctance to commit to aggressive monetary stimulus as traders price in a longer path to recovery as well as the political implications of inaction.

Key Overnight Developments

• Australian Trade Surplus Higher Than Expected on Gold Export Demand
• New Zealand Commodity Export Prices See First Rise in 8 Months
• Euro, British Pound Rise as Asian Stocks Follow Wall St Higher

Critical Levels



The Euro added as much as 0.5% in overnight trading while the British Pound advanced 0.4% as stocks pushed higher across Asian exchanges, weighing on the safe-haven US Dollar. The MSCI Asia Pacific Index surged 3.6%, following a rally on Wall St sparked by better-than-expected US economic data and encouraging comments from US Treasury Secretary Geithner, who said global stimulus efforts are showing “traction”.

Asia Session Highlights



Australia’s Trade Balance showed a much greater surplus than economists expected, printing at A$2.1 billion in February versus expectations of a A$0.7 billion result, the seventh consecutive month in positive territory. The improvement was driven by a -3.5% drop in imports while exports increased for the first in fourth months, adding 7.7%. The uptick in outbound shipments was driven by a 55% surge in gold, likely driven by demand for store-of-value assets as central banks around the world buy billions in government and private-sector debt with printed money to lower borrowing costs and boost access to lending (a practice commonly referred to as “quantitative easing”). Importantly, it remains to be seen if gold demand has staying power as it becomes clear that rapid inflation is not entirely guaranteed as a consequence of quantitative easing. Still, trade data may continue to improve as lackluster consumer spending amid the deepening economic downturn pressures import volumes lower.

The ANZ Commodity Price Index of New Zealand’s top export goods saw positive gains for the first time in 8 months in March, rising 1% following a -4.6% drop in February. The CRB/Reuters Commodity Price Index jumped 2.9% through March as risk appetite rebounded across financial markets. Importantly, we continue to see substantial reasons conclude that the upswing in risky assets is temporary in the scope of a larger down trend: growth forecasts remain grim for 2009, suggesting weak demand will weigh on prices for some months to come. The recent appreciation of the New Zealand Dollar will also hurt the export sector, making the antipodean nation’s good more expensive to foreign buyers. A trade-weighted average of the currency’s value rose 11.7% in March.

Euro Session: What to Expect



The interest rate decision from the European Central Bank is the clear standout on the economic calendar for the forthcoming session. A survey of economists conducted by Bloomberg expects Jean-Claude Trichet and company to slash rates by 50 basis points to put overnight borrowing costs at 1%. Overnight index swaps tell another story however, with traders pricing the likelihood that only 25 basis points will be shaved off the benchmark rate. Interest rate futures offer a third scenario, showing traders are betting on a 75bps reduction. Mixed signals ahead of the release are likely to spark volatility with some traders caught on the wrong side of the market when the news hits the wires. The press conference following the initial announcement holds even more potential to stir price action. The ECB has been under the gun recently for being too timid in offering monetary stimulus as the Euro Zone sinks deeper into recession. Trichet has been teasing the market with promises to “study unconventional measures” beyond lowering the benchmark lending rate and sounded clearly defensive about criticisms that he is not doing enough in a recent Wall Street Journal interview. This will be his chance to give the markets something tangible; if it is wasted, the Euro is likely to see significant selling pressure as traders price in a longer path to recovery as well as the political implications of inaction. Indeed, grumbling electorates are likely to become more receptive to the notion that national monetary capabilities should be un-tethered from the ECB’s measured approach as the downturn hits home for an increasing percentage of Europeans, posing a serious structural threat to currency union itself.

Written by Ilya Spivak, Currency Analyst
Article Source - Euro Selling Likely If Central Bank Remains Soft on Interest Rate Cuts (Euro Open)