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- Euro Gains for Test of 1.4350 Amidst Optimistic Comments from ECB President Trichet, Improving Economic Data
- British Pound Reverses Intraday and Ends as the Weakest of the Majors
- New Zealand Dollar Reaches Fresh 2009 Highs

US Dollar, Japanese Yen Fall vs. High Yielders as European, Asian Equities Rally Post-G20
The US dollar and Japanese yen both took a hit against the commodity dollars on Monday, as risk appetite improved after the Group of 20 (G20) concluded their summit with a pledge to keep continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies...until recovery is secured. As DailyFX Analyst Ilya noted this morning, building consensus on such issues as bank regulation and executive compensation is already proving difficult in the absence of imminent economic meltdown, and agreeing on a coordinated plan to withdrawing stimulus seems like it will be more daunting still, threatening sharp swings in government bond yields and the corresponding currencies.

As we enter the start of the European trading session on Tuesday, volumes should start to pickup, which creates potential for breakouts from the summer trading ranges will rise substantially. Overall, the status of the DXY index will be important as it has managed to hold above a rising trendline drawn from the July 2008 low at 77.90 and below a falling trendline drawn from the 2009 highs at 78.50/60.

Related Articles: US Dollar May Finally See Break from Summer Ranges as Liquidity Returns, US Dollar Weekly Trading Forecast

Euro Gains for Test of 1.4350 Amidst Optimistic Comments from ECB President Trichet, Improving Economic Data
Comments continue to trickle out of the Euro-zone, with European Central Bank President Jean-Claude Trichet saying at a press conference that recent indicators of growth had been better than anticipated and stabilization is something which seems to be confirmed at the global level. While Trichet said there is still a bumpy road ahead and we have to remain prudent and cautious, he stated we're probably...out of the period of free fall. Two economic reports from the region backed his statements up, as the Sentix investor survey of German optimism on the Euro-zone rose to -14.6 from -17.0 while German factory orders rose for the fifth straight month in July at a rate of 3.5 percent. That said, German orders remain down a whopping 19.8 percent from a year earlier, and while this is up from the record low of -38 percent reached in February, it still highlights the degree of the global recession and its impact on export-dependent nations like Germany.

On Tuesday, German data is likely to highlight recent trade improvements once again, as exports are forecasted to have risen for a third month in July, this time at a rate of 1.2 percent, while imports are projected to have risen by 1.0 percent, which could ultimately leave the trade balance down slightly at 11.3 billion euros from 12.2 billion euros. Furthermore, German industrial production is expected to have risen 1.6 percent in July, which may push the annual rate up to a 7-month high of -15.8 percent from -18.1 percent.

Related Article: Euro Weekly Trading Forecast

British Pound Reverses Intraday and Ends as the Weakest of the Majors
The British pound was the weakest of the majors at the start of the week, as GBPUSD backed off from former trendline support at 1.6440 and GBPJPY tumbled from 153.00. There was no economic data on hand for the UK and the currency had actually been holding up well throughout the morning as the FTSE 100 rallied 1.68 percent to the highest closing level since October 3, 2008. Once shares stopped trading, though, the British pound dove lower. Looking ahead to Tuesday, UK industrial production is anticipated to rise for a second month in July, this time at a rate of 0.2 percent. Though this would still leave the annual rate down at -10.1 percent compared to -11.1 percent, the data could be supportive for the British pound since it reflects mild improvements in the UK economy.

Related Article: British Pound Weekly Trading Forecast

New Zealand Dollar Reaches Fresh 2009 Highs
The commodity dollars dominated once again on Monday as Asian and European equities rallied, indicating broad-based risk appetite. This week, risk trends should remain the primary driver of these currencies, but the New Zealand dollar will face a rate decision on Wednesday, when the Reserve Bank of New Zealand (RBNZ) is anticipated to leave the Official Cash Rate target unchanged for the third straight meeting at 2.50 percent. In RBNZ Governor Alan Bollard's last policy statement, he sounded extremely cautious on the outlook for the economy, especially because the strength of the New Zealand dollar had created additional risks. Where the New Zealand dollar ends the trading day will likely have to do with the status of one statement though: the final portion. We also saw in the last policy statement that the RBNZ maintained that it was appropriate to continue to provide substantial monetary policy stimulus to the economy and that the central bank could still lower rates modestly during the coming quarters as they continue to expect to keep the OCR at or below the current level through until the latter part of 2010. If the RBNZ eliminates the phrase noting that they could still lower rates, the New Zealand dollar is likely to surge in anticipation of rate hikes down the line. On the other hand, if the RBNZ maintains their dovish-neutral tone, the currency could slip.

Related Articles: New Zealand Dollar Weekly Trading Forecast, Australian Dollar Weekly Trading Forecast

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Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail:
tbelkas@dailyfx.com