Euro Momentum Stalled By Record Drop In Industrial New Orders
The Euro pushed back above 1.4100 as the single currency has
steadily climbed since Friday’s low of 1.3828 before a record low in
industrial new orders reversed gains. October saw demand drop 4.7%
after a revised 5.4% decline the month prior, dragging the annualized
rate down by a record 15.1%.Talking Points
• Japanese Yen: Finds Support at 89.70
• Pound: Losses continue
• Euro: Falls On Drop In Industrial New Orders
• US Dollar: Possible Auto Bailout Presents Event Risk
Euro Momentum Stalled By Record Drop In Industrial New Orders
The Euro pushed back above 1.4100 as the single currency has steadily climbed since Friday’s low of 1.3828 before a record low in industrial new orders reversed gains. October saw demand drop 4.7% after a revised 5.4% decline the month prior, dragging the annualized rate down by a record 15.1%. The Euro found early momentum from The Gfk German consumer confidence report showing that sentiment remained unchanged at 21 as easing inflation has offset the recession concerns. Meanwhile, November French factory gate costs fell by 1.9% following a 0.9% decline the month prior. A 7.1% drop in energy costs would lead the way with a 1.3% drop in intermediate goods adding to the decline. Also, German import prices fell 3.4% in November following a 3.6% drop the month prior.
The Euro has seen extreme volatility as risk appetite and interest rate expectations have fluctuated. The ECB has reverted back to its hawkish tone following its aggressive 75 bps rate cut on December 4th . This has offset markets expectations of another 150 bps of cuts aver the next 12 months. If the region’s economy continues to contract the central bank will be forced to follow policy maker sin the U.S.., U.K., and Japan and move toward a ZIRP. This could lead to Euro weakness throughout the beginning of 2009 with a move below 1.200 as a possibility.
The Pound gave back most of its gains from late Friday and is now looking to test last week’s low of 1.4813. Outgoing BoE Deputy Governor John Gieve"s admission that the BoE knew "crazy borrowing" was taking place during the boom years--but did not understand the severity of the problem, has hurt the pound. Expectations that more easing from the BoE is forthcoming will continue to weigh on the Sterling which could see it look to re-test 1.4500 before the end of the year.
An empty economic calendar will leave the dollar at the mercy of risk winds and end of the year activity. The upcoming Christmas holiday will lead to a week of low trading volume which will leave price action susceptible to large swings as institutional buying will have a larger impact. The rescuing of the U.S. auto industry and a large fiscal stimulus plan that is being prepared for 2009 may lead to traders looking to grab up bargains sending equity markets higher and the dollar lower. However, we could see continued demand for U.S. Treasury’s as the government will need to continue to issue new debt in order fund the growing deficit. The safe-haven flows could continue to add dollar support.
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