Economic Calendar

Monday, November 17, 2008

Euro, Pound Rally Despite Toothless G-20 Summit

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Daily Forex Fundamentals | Written by DailyFX | Nov 17 08 11:32 GMT |

Talking Points

  • Japanese Yen: Officially Enters A Recession
  • Pound: Rally's Despite Declining Home Prices
  • Euro: Trade Balance Unchanged
  • US Dollar: Industrial Production on Tap

Euro, Pound Rally Despite Toothless G-20 Summit

The Euro rose over a 140 pips in overnight trading to 1.2704, despite A G-20 summit that failed to deliver a plan of action to combat the slumping global economy by the world's leaders. The single currency managed to hold onto its gains despite a Euro-zone trade balance report that showed the deficit remained seasonally adjusted unchanged at 5.7 billion Euros after Augusts' initial reading was revised higher from 6.1 billion. The headline reading showed a narrowing of the gap from 9.4 billion to 5.6 billion as imports jumped 2.1%.

Despite the lack of teeth from the G-20 summit, forex traders are hanging their hat on the fact that talk of a global fiscal stimulus effort is better than the prior denials of a worldwide problem. Expectations are that the Euro-zone will see continued efforts by its individual member governments and the ECB to help reverse the current recession that the region finds itself in. This could add support for the Euro today, and see it continue to trade in its current range of 1.2400 - 1.300. This may be its most likely path until the central bank's next policy meeting on December 6th, where another rate cut and the signal of further easing by President Trichet could lead to a breakout.

The British pound jumped nearly 300 pips before finding resistance ahead of the 1.5000 price level. The move came despite home prices falling another 2.9% in November according to property website Rightmove latest index. Although the U.K. housing slump is not new news, that fact that the market continues to shows signs of further deterioration despite the BoE slashing rates to a 63-year low of 3% will be troubling for policy makers. Indeed, expectations that the central bank may need to cut rates to 0% in order to see an ultimate bottom in the sector. The Sterling continues to find trend line support despite the declining interest rate expectations. The next major support level is at 1.4000 and a break there could send the GBP/USD spiraling toward 1.1000.

The U.S. economic calendar will unusually provide some event risk to start the week with industrial production and the Empire manufacturing readings on tap. Activity in the New York region for November is expected to have declined further as the impact from the credit crisis continues to plague manufacturers. Although, the national reading for October is anticipated to have seen a 0.2% improvement the lagging indicator may not have capture the full impact of the frozen credit markets. Given the wide misses by the regional indicators during that period it is feasible to expect that production contracted which would only dim the outlook for the U.S. economy and could weigh on the dollar. Also, the prospect of more global efforts could raise investors risk appetite and the inverse correlation could also lead to traders selling the dollar. However, if U.S. investors' view the G-20 summit as another failed attempt by the global community to come together for a common good and that ultimately they will revert back to a protectionist course of action, then the resulting risk aversion could send the dollar higher

DailyFX

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