Euro Open: Euro, British Pound Keep Pressure On The US Dollar Ahead Of Retail Sales Report

Daily Forex Fundamentals | Written by DailyFX | Nov 14 08 05:39 GMT |

The Euro and British Pound spent the overnight session consolidating gains seen in late US trading hours. A slew of Euro Zone data awaits in the forthcoming session, with France and Italy expected to follow Germany into a technical recession with negative GDP marks it the third quarter. On balance, acute economic slowdown in the common market is an established theme in the forex market at this point, with traders looking to the US Retail Sales release as the next key event risk late into the session. Key Overnight Developments Euro, British Pound Consolidate NY-Session Gains Against US Dollar US Stock Index Futures Down Over 1% Overnight, Pressuring Risk Appetite The Euro and British Pound spent the overnight session consolidating gains seen in late US trading hours. The single currency built a bottom above the 1.27 mark while the sterling oscillated in a wide 170-pip range around 1.4850. Asia Session Highlights With virtually no market-moving data on the economic calendar, forex markets paused to consolidate the moves seen in late New York trading. The US Dollar plunged -2.1% against the Euro as stocks surged to close the Wall St trading day with a nearly 7% gain. The greenback has been closely correlated with stock performance in recent weeks as investors flocked to the dollar as a safe-haven asset amid sweeping flight from risk. Indeed, EURUSD now shows a 93% correlation with the MSCI World Stock Index. Because US policymakers were the first to address the current downturn with interest rate cuts and fiscal stimulus, traders are betting that US will lead the global recovery. An interest in US Treasury bonds has also helped the dollar higher: traders scared out of risky assets first by the credit crunch and now by fears of looming global recession have sought refuge in long-term US government debt (and thereby fueled demand for dollars). US Treasuries are considered a nearly 'risk-free' asset because the only meaningful threat to the investment would be a collapse of the US government itself. Euro Session: What to Expect The economic calendar is packed with Euro Zone data in the forthcoming session. The final revision of Germany's Consumer Price Index is expected to confirm headline inflation at 2.4% in the year to October, the lowest in 6 months. The broader Euro Zone result is expected at 3.2%, the lowest since January and markedly more manageable in its proximity to the European Central Bank's 2% long-term target than July's peak at 4%. On balance, this gives the ECB more room for monetary easing, though the likelihood of continued cuts is hardly news-worthy with central bankers around the world rushing to outpace each other en route to cheaper lending. The markets are pricing in a -0.50% cut from Trichet and company in December, with 106 basis points in easing over the next 12 months. Looking at economic growth metrics, both French and Italian Gross Domestic Product readings are expected to issue their second consecutive down quarters in the three months through September. Germany led the way with the same result yesterday, putting all three of the Euro Zone's top economies in recession. The total Euro Zone GDP result is set reflect as much, expected to print at -0.2% for the third quarter after showing the equivalent result in the three months to June. On balance, acute economic slowdown and subsequent monetary easing are firmly established themes in the forex markets' outlook for the Euro Zone. As such, traders are unlikely to see tonight's data docket produce much volatility, with markets looking ahead to the US Retail Sales release late into the session. The direction of US data has become the de-facto barometer on the severity of the much-feared global recession, making Retail Sales the latest catalyst to drive risk sentiment and thereby set the tone for price action across financial markets. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. 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