Euro Hits Fresh Yearly High, British Pound Continues to Retrace the August Decline
The euro surged higher during the overnight session to reach a fresh yearly high of 1.4474 as investors raised their outlook for global growth, and the single-currency may continue to retrace the sell-off from the previous year as market participants ramp up demands for higher risk/reward investments.
• Japanese Yen: Weakens as Investors Turn Less Risk Averse
• Pound: Industrial Production, Manufacturing Rises for Second Month
• Euro: German Trade Surplus Widens, Industrial Outputs Falter
• US Dollar: Consumer Credit on Tap
The euro surged higher during the overnight session to reach a fresh yearly high of 1.4474 as investors raised their outlook for global growth, and the single-currency may continue to retrace the sell-off from the previous year as market participants ramp up demands for higher risk/reward investments. A report by the Federal Statistics Office showed Germany’s trade surplus unexpectedly widened in July following the rebound in foreign demands, and the European Central Bank may continue to hold an improved outlook for future growth as Europe’s largest economy emerges from the worst recession since the post-war period.
Germany’s trade surplus increased to EUR 13.9B from a revised reading of 12.1B in June amid expectations for a drop to EUR 11.3B, with the current account widening to EUR 11.0B from EUR 13.5B. A deeper look at the report showed exports advanced 2.3% on the month amid expectations for a 1.2% rise, while imports unexpectedly held flat from June, and the data encourages an enhanced outlook for the region as trade conditions improve. However, a separate report showed industrial outputs unexpectedly fell 0.9% during the same period, with the annual rate of production slipping 17.0% from the previous year, and firms may operate below full-capacity throughout the remainder of the year as businesses continue to extend cost-cutting measures. Nevertheless, as the EUR/USD remains well supported by the 50-Day moving average at 1.4188, the pair may continue to extend the advance from March as investors anticipate the ECB to tighten policy over the next 12 months however, the lack of momentum to break above the psychological barrier at 1.4500 may keep the pair within a broad range throughout the month as traders continue to weigh the outlook for future policy.
The British pound crossed back above the 20 and 50-Day moving averages to reach an intraday high of 1.6577 during the European session, and the GBP/USD may continue to retrace the decline from the previous month following the rise in market sentiment. The 200+pip rally confirms that the head-and-shoulders top formation will not play out as some have suggested, and we may see the cross rates for the British pound continue to push higher over the near-term as market participants speculate the Bank of England to raise the benchmark interest rate by at least 75bp in 2010. At the same time, the economic docket showed industrial outputs in the U.K. rose for the second consecutive month in July, led by a 0.9% increase in manufacturing, and firms may continue to boost their rate of production going into the following year as growth prospects improve.
The greenback continued to weaken against is currency counterparts following the rise in risk appetite, with the dollar index slipping to a fresh yearly low of 77.138, and the reserve currency may face increased selling pressures throughout the week as investors raise their appetite for risk. Meanwhile, the economic docket is likely to reinforce an improved outlook for the US as market participants forecast consumer credit to fall at a slower pace in July, while the ABC confidence survey is anticipated to improve for the week beginning September 6, and the extraordinary efforts taken on by the government may lead the economy to emerge from the recession later this year as the Federal Reserve pledges to keep the benchmark interest rate at the record-low going into 2010.
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Forex Weekly Trading Forecast - 09.07.09
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