Retail Disappointment Undermines Euro

Daily Forex Fundamentals | Written by Investica | May 13 09 13:53 GMT |

Conditions within the credit markets have continued to ease and this will tend to lessen defensive demand for the US currency. The dollar is also showing some greater vulnerability over the fears of a medium-term credit-rating downgrade due to the escalating debt burden. These fears should certainly not be ignored, but the impact will be offset by a lack of attractive alternatives. Markets have also priced in a substantial amount of good news and any sustained setback for global equities would underpin the dollar. Overall, the Euro is liable to weaken to the 1.3420 region before finding fresh support. The US trade deficit was slightly lower than expected with an increase to US$27.6bn for March from a revised US$26.1bn the previous month. There was a further decline in trade volumes for the eight successive month with exports declining by 17.4% over the year while imports registering a sharp 27%.annual decline. The US federal budget recorded a deficit of US$20.9bn for April compared with a US$159.3bn surplus for the equivalent month last year. This was the first deficit for April since 1983, reinforcing the severe underlying deterioration seen over the past year and the need for huge debt issuance over the coming year. There has been further speculation that the US AAA credit rating could be at risk and the budget data will tend to reinforce these fears. The Euro re-challenged levels above 1.37 in early Europe on Wednesday, but was again unable to sustain the move with risk appetite dampened by a reported 0.4% decline in April US retail sales which created fresh doubts over the US economic conditions. Investica http://www.investica.co.uk Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.