Euro Market Open

US Dollar on the Defensive to Start the Trading Week (Euro Open)

Monday, 03 November 2008 06:27:28 GMT  |  Ilya Spivak, Currency Analyst

The US dollar lost ground to the Euro and the British Pound at the open of the trading week as easing risk perception saw traders moving money out of safe-haven assets. With a thin economic calendar ahead for European hours, forex price action looks likely to continue taking cues from cross-market capital flows.

Key Overnight Developments

• Euro, Pound Push Up Against the US Dollar
• Oil Rises to Test $70/barrel, Stocks Broadly Higher


Critical Levels 



The Euro gained ground at the open of the trading week, building a foot-hold above the 1.28 level. The British Pound followed suit, pushing higher to consolidate above 1.6230 late into the overnight session.


Asia Session Highlights 



Australian consumers pared back spending to a greater degree than expected in September, with seasonally-adjusted Retail Sales down -1.1% versus forests calling for a -0.5% decline. Spending on eating out at restaurants (-6.8%) and apparel (-4.6%) led the slowdown. Economists expect the pace of GDP growth to slow a whopping -0.85% in the third quarter. The Reserve Bank of Australia has rushed to offer monetary stimulus to sidestep recession, with the markets pricing in at least a 0.50% interest rate cut when Glenn Stevens and company announce policy later this week. TD Securities Inflation was supportive of further easing, suggesting the pace of price growth slowed to 3.9% in the year to October.

The US Dollar was firmly on the defensive to start the trading week. With little data of significance on the economic calendar, price action looks to have taken its cues from easing risk aversion across financial markets. We now see a formidable -91% inverse correlation between the EURUSD and MSCI World stock index. As much was noted by DailyFX Currency Strategist Terri Belkas in the latest Forex Weekly Forecast, where she points out that the greenback ended last week sharply lower while traditionally risky assets (high-yielding currencies, stocks, commodities) all registered impressive gains. Overnight trading saw major Asian equity indices add over 5% and US equity futures pushed up by over 1% while the greenback lost -0.9% against an average of six top currencies.


Euro Session: What to Expect 



With a thin economic calendar ahead for European hours, forex price action looks likely to continue taking cues from cross-market capital flows. While the most notable item on the docket would typically be the European Commission release of economic growth projections, slowdown in the region in effectively a given at this point. Indeed, the ECB is expected to slash borrowing costs by at least 50 basis points later this week. Otherwise, the final revisions of a number of key Euro Zone Purchasing Manager Index surveys offer little new information on the slowing manufacturing sector, while the analogous SVME-Purchasing Managers Index release is set to show that Switzerland is firmly en route to catch the EU’s flu as sagging demand from the regional bloc weighs on the mountain nation’s economic growth.

All told, risk-driven trading will likely continue late into the day ahead of the US ISM Manufacturing Survey release at 15:00 GMT.


Related Articles:

Forex Trading Weekly Forecast - 11.03.08


To contact Ilya regarding this or other articles he has authored, please email him at ispivak@dailyfx.com.

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