Eurozone Economic Confidence Rises to the Highest Level Since March 2008

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Fundamental Headlines

• Bank of Japan Action Fails to Contain Yen – Wall Street Journal

• European Markets Advance – Wall Street Journal

• Bank of Japan Takes Fresh Stimulus Steps - Financial Times

• Yen Advances on Concern Bank of Japan Steps Won’t Be Enough to Curb Gains- Bloomberg

• European Economic Confidence Improves to Highest in Two Years on Exports – Bloomberg

EUR/USD: Economic confidence in the 16 member euro area rose to its highest level since March 2008 for the month of August. Figures climbed to 101.8 from 101.1 the month prior amid economists’ expectations of 101.6. Meanwhile, business confidence remained unchanged at -4 from July, while consumer confidence pushed slightly higher in August to -11 from -14 the previous month. Despite the better than expected readings today, sentiment in the region will come under pressure in the coming months as tough austerity measures by governments in the bloc will weigh on growth in the coming months of 2011. Worth noting, on Friday, European Central Bank President Jean-Claude Trichet said that governments risk a “lost decade” of debt triggered by the financial crisis. Taking a look at price action, after extending its three day advance, the EURUSD has reversed course at the 50 day moving average. With that said, I will remain short from 1.3100, with a target of 1.2500, and my stop unchanged at 1.2900. Traders will now shift their focus to the ECB rate decision which is expected to be released later on this week. Indeed, the central bank is forecasted to keep its key overnight lending rate unchanged at 1.00 percent as the economy faces major headwinds in the coming months.

Written by Michael Wright, Currency Analyst

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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly Forecast