Euro Falls Below 1.550 As Services And Consumption Contract

Daily Forex Fundamentals | Written by DailyFX | Aug 06 08 10:52 GMT |


Talking Points

* Japanese Yen: Government Acknowledges Country Probably In Recession.
* Euro: Falls Below 1.550 As Services And Retail Sales Decline
* British Pound: Mixed Data Reverses Earlier Losses
* US Dollar: MBA Applications on tap

The Euro was weighed below 1.5470 as German factory orders unexpectedly fell 2.9% in June, dragging the annualized rate down 6.1%. German factories saw demand from abroad declined 5.1% as a strong Euro has made their goods less competitive. EURUSD steadily gave back gains following the Fed's rate decision throughout the overnight trading sessions, as expectations that Trichet may acknowledge the growing downside risks to the regions economy. The ECB is anticipated to keep their benchmark rate unchanged at tomorrow's rate decision at 4.25%.

Despite the Fed changing its language following yesterday's rate hold with statements regarding growth less optimistic than those following the prior meeting, the dollar has strengthened erasing earlier losses against the major currencies. The outlooks for Europe, Britain and Japan have significantly worsened since the last rate decision and have kept the greenback firm. Central banks across the world are anticipated to begin easing policies by year's end or the first half of 2009, with the RBNZ already cutting rates and the RBA indicating that they will soon follow. Expectations are increasing that ECB President Trichet and BoE Governor King may start changing their biases.

The dollar had its biggest overnight gain against the Yen rising above 108.60, as the Japanese government acknowledged that the country's economy is deteriorating and has entered a recession. Companies are seeing their profit margins continue to shrink as they battle rising costs for energy and raw materials, while exports fall as global demand declines. Indeed, the leading indicator index fell to 91.1% from 91.2% in May, highlighting the dimming outlook.

MBA mortgage applications is the only economic release on the U.S. docket. The slumping housing market is of great concern and a significant move in either direction could provide event risk for the greenback. However, this second tier indicator will most likely have minimal impact on the dollar as the BoE and ECB rate decisions loom. However, another strong day for equities could see the dollar continue to strengthen against the Yen as carry trade flows increase



DailyFX

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