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The Euro reached as high as 1.3728 in overnight trading as it bounced from an intraday low of 1.3615 at the start of the European session. The single currency would run into resistance at the 38.2% Fibo level of the 1.6041-1.2329 decline at 1.3738. Euro-zone industrial production in February fell by 17.3% from a year ago which was a record amount.

Talking Points
• Japanese Yen: Finds Support At 94.00 As Japanese Markets Closed
• Pound: BoE Chief Economist Bullish Comments Spark Sterling
• Euro: Industrial Production Falls to Record Low
• US Dollar: Bernanke To Speak

Euro Pares Gains As Industrial Production Falls To Record Low


The Euro reached as high as 1.3728 in overnight trading as it bounced from an intraday low of 1.3615 at the start of the European session. The single currency would run into resistance at the 38.2% Fibo level of the 1.6041-1.2329 decline at 1.3738. Euro-zone industrial production in February fell by 17.3% from a year ago which was a record amount. Activity dropped for a fifth consecutive month as a 6.0% declined in capital goods dragged the monthly reading lower by 3.5%. The dour fundamental data has started to weigh on the Euro as it lost 50 bps following the release.

The recession in the Euro-zone continues to show signs of deepening, and with other central banks continuing to be aggressive with bringing their interest rates near zero and embarking on quantitative easing, many are calling for more action from European policy makers. The ECB was on the wires today with a no comment on whether a rescue plan was in place to prevent currency bloc members from going bankrupt. The statement came in response to remarks from German politician Otto Bernhardt, who stated in an interview that there is a plan and we won't let anyone go bust. Countries such as Ireland and Greece have seen their credit rating downgraded and find themselves in peril, if the current downturn worsens then the central bank may need to take action to ensure that their troubles don't threaten the entire economic union.

The Pound jumped over a 100 bps to 1.4591 when European markets open as volatility picked up after closed Japanese markets led to low volume during the Asian session. We have started to see Sterling give back some of those gains as concerns grow that the U.K.'s recession may deepen further. Indeed, the BoE chief economist Spencer Dale stated that a more prolonged downturn could not be ruled out despite A substantial amount of the total contraction we're going to see has come through. He would go on to say that if inflationary pressure resumed that the central bank would need to reverse current quantitative easing efforts. Overall the interview was bullish with the country's chief economist calling for a return to growth by the end if 2009 which was a source of earlier sterling gains. The 100-Day SMA looms as possible resistance for the pound/dollar at 1.4660 which may limit upside potential.

An empty U.S. economic docket could leave the dollar at the mercy of the current bearish sentiment and the broader macro themes. The greenback continues to get punished as the Fed's printing of money has caused it to lose its favor as a safe-haven. Chairman Ben Bernanke speaking in Phoenix today could impact risk sentiment of the central bank leader paints a dour or positive outlook for the U.S. economy. However, the remarks may have little impact on the dollar given the current momentum. Equity markets were flat in Europe and U.S. futures are pointing toward a lower open which could add some support for the dollar.

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To discuss this report contact John Rivera Currency Analyst: jrivera@fxcm.com