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The Euro would fall to as low as 1.3147 after a dismal earnings report from aluminum producer Alcoa, which cited declining global demand and freefalling commodity prices as the cause for their $0.59 loss. The fundamental data for the region helped fuel pessimism as German exports fell for a fifth month by 0.7%.

Talking Points
• Japanese Yen: Tested Support at 99.50
• Pound: NIESR GDP Falls 1.5%
• Euro: German Factory Orders Fall For Sixth Month
• US Dollar: FOMC Meeting Minutes On Tap

Euro, Pound Trade Heavy As Weak Fundamentals And Corporate Earnings Fuel Risk Aversion.


The Euro would fall to as low as 1.3147 after a dismal earnings report from aluminum producer Alcoa, which cited declining global demand and freefalling commodity prices as the cause for their $0.59 loss. The fundamental data for the region helped fuel pessimism as German exports fell for a fifth month by 0.7%. However, demand from abroad was stronger than expectations for a 3.3% drop. However, the weaker than expected 4.2% decline in imports underlines the weakening domestic demand and led to the trade balance widening to 8.7 billion from 7.0 billion. Additionally, German factory orders in February fell for a sixth month by 3.5% which dragged the year-over-year total to a fresh record low of 3.82%. A 5.7% decline in domestic demand followed by a 3.7% drop in orders from the Euro-zone, shows that the region continues to fall deeper into a recession. The EUR/USD had climbed back to 1.3229 before the weak fundamental data stalled bullish momentum.

The pound fell to an intraday low as 1.4634 on the back of the NIESR GDP report showing the economy contracted by 1.5% in the first quarter. The current contraction has started to resemble the 1979 recession and although the U.K. economy has started to show signs of life, a deteriorating labor market will limit optimism and lower expectations for domestic growth. Indeed, consumer confidence remained at a record low of 41 despite economists predicting an improvement to 45 which demonstrates the impact of mounting job losses. Despite the deepening recession, the BoE is expected to keep their benchmark rate at 0.50% tomorrow as there is little room for them to maneuver. However, if the central bank hints at further quantitative easing measures then we could see continued sterling weakness. The 100-Day SMA at 1.4559 has provided support for the pair and will become a key level to watch.

The USD/JPY after finding brief support during Asian trading has come under pressure again as risk aversion flows have become a negative influence on the pair. The USD/JOPY would fall to as low as 99.45 before finding support as the uncertainty if the upcoming earnings season has limited risk appetite. The 200-Day SMA at 99.10 is a significant support level and a break below could lead to an extended move lower. However, if the technical level holds its ground and earnings are better than expected then we could see the 10/14 high of 103.08 tested.

The dollar continues to find support as global risk aversion on concerns that more companies will follow Alcoa and report dismal earnings for the first quarter. Today's economic docket doesn't present any significant event risk as second tier indicators MBA mortgage applications and wholesale inventories are due for release. An increase in lending could help reverse sentiment as it would continue the theme of improving data from the housing sector, which may signal that a bottom s forming. Many investors see the recovery of the housing sector as a key for the U.S. economy ending its current downturn. Markets may pay the most attention to today's release of the FOMC's minutes to get a gauge on the state of the economy and insight into the future course of action for the central bank. A gloomy outlook from policy makers would help fuel pessimism and lend dollar support.

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