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The Euro rose to an intraday high of 1.3314 supported by rising European equity markets which saw most major indices up over 2% in early trading. The beginning of the G-20 summit is helping boost risk appetite as optimism increases that the global economy may be beginning to stabilize.
• Japanese Yen: Broke Above 200-Day SMA
• Pound: Home Values Rose For First Time In 17 Months
• Euro: ECB Rate Decision Ahead
• US Dollar: Initial Jobless Claims On Tap
Euro Choppy Ahead of ECB Rate Decision, Pound Finds Support On Improving Fundamentals
The Euro rose to an intraday high of 1.3314 supported by rising European equity markets which saw most major indices up over 2% in early trading. The beginning of the G-20 summit is helping boost risk appetite as optimism increases that the global economy may be beginning to stabilize and the outcome from the meeting of world financial leaders will help accelerate future growth. Since reaching its peak we have started to see ebb and flow price action as traders take sides on whether the ECB will announce quantitative easing measures following their upcoming rate decision.
The central bank is expected to announce a 50 bps rate cut in their benchmark rate at 11:45 GMT which could lead to some initial price volatility. Although the move is expected, the markets reaction may be difficult to gauge as it may be viewed as a positive for the region's economy and could spark bullish euro sentiment. However, traditionally a lower yield for the currency is a bearish factor which could put pressure on the euro. However, markets will be focused on President Trichet's post decision comments to see if the central bank will begin buying European assets and if they are ending their easing cycle or more cuts are ahead. Policy makers have been reluctant to take that route and signs that the money markets are loosening may make such a drastic change in thinking less likely. Therefore, we could se support for the single currency leading up to the press conference and sharp volatility after based on the central bank's future intentions.
The pound has risen above 1.4620 as the economy continues to see better than expected fundamental data and global risk appetite increases. U.K. house prices rose for the first time in 17 months by 0.9% according to Nationwide LLC, which pulled the annual loss in value up from -17.6% to -15.7%. The efforts of the BoE to loosen credit markets are starting to take root as seen in the BoE credit conditions survey which saw lending to consumers and small businesses tighten less than expected. Additionally, the construction PMI reading rose from its record low of 27.8 to 30.9 which followed the improvement in the manufacturing gauge yesterday. A break above the 100-Day SAM at 1.4564 is a positive sign for sterling bulls as the technical level has provided resistance since August, 2008. The 2/9 high of 1.4988 is the next resistance level to watch.
The dollar has started to come under pressure as global risk appetite has started to pick up as optimism increases that growth is starting to stabilize. The G-20 meeting today may add to the growing sentiment as world leaders meet to carve out future measures to help stem the current crisis and prevent a repeat in the future. Yesterday's better than expected ISM manufacturing and pending homes sales readings helped turn U.S. equity markets higher and built upon the growing theme of improving fundamental data. U.S. Treasury Secretary Timothy Geithner said yesterday that there are encouraging signs that financial markets are recovering. Therefore, If we start to see banks resume their traditional practices of lending to businesses and consumers then we could see conditions start to improve at a faster pace. Until that time we may still see some significant weak fundamental data including the upcoming NFP payroll report which is forecasting job losses in excess of 600,000. Today's initial jobless claims report will help share expectations for tomorrow as it is expected to show unemployment rolls increased by another 650,000. Following ADP's report showing private sector job losses of 742,000 the dismal unemployment numbers could dampen optimism and provide dollar support. However, markets could look past the lagging indicators and focus on the signs of improving growth which will continue to weigh on the greenback.
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ECB Expected to Cut Rates By 50 bps
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