European Confidence Deteriorates, Stoking Pressures for Further Easing

Fundamental Headlines

• Shell Swings to Loss as Oil Slumps – Wall Street Journal
• Sony's Net Drops Sharply – Wall Street Journal
• Starbucks to cut 6,700 jobs amid falling sales – Financial Times
• UAW to End GM Jobs Bank on Feb. 2, Following Chrysler – Bloomberg
• UBS Slashes Its Bonus Pool for 2008 by More Than 80% – Bloomberg

EURUSD – Economic confidence in the Euro-Zone fell to its lowest level since recordkeeping began in 1985 as the index fell to 68.9 from a revised reading of 70.4 in December, and conditions are likely to deteriorate further as financial uncertainties linger. As a result, the consumer confidence index slipped to -31 from -30 in the previous month, while sentiment among businesses fell to -3.16 from a revised reading of -3.09 during the same period. Meanwhile, the Euro-Zone retail PMI rose to 44.0 from 41.4 in December, whereas the PMI reading for Germany contracted for the eight consecutive month as the index slipped to 41.7 from 42.3. Furthermore, the German labor market weakened for the third month in January as unemployment increased 56K during the month, after rising 33K in December. The downturn in employment pushed the jobless rate to 7.8% from a revised reading of 7.7% in the previous month, and conditions are likely to get worse as Europe’s largest economy faces its worst recession in over a decade. Fading demands from the global economy has certainly dragged on businesses throughout the second half of 2008, and as the outlook for growth remains bleak, the European Central Bank may ease policy further over the near-term as ECB president Trichet reiterates that the Central Bank has not excluded the possibility that the interest rate could go below 2% in March. Discuss the topic and your trade ideas in the EUR/USD Forum.

GBPUSD – The U.K. Nationwide home price index fell to its lowest level in four years, and the index fell another 1.3% in December following a 2.5% decline in the previous month amid expectations for a 1.7% decline. Meanwhile, on an annual basis, home prices declined 16.6%, which is the biggest drop since the series began in 1991. The data continue to highlight the dire state of the U.K. housing market, where falling house prices and lower interest rate fail to lure potential home buyers. As a result, housing conditions are likely to remain weak throughout the foreseeable future as credit conditions remain far from normal. Meanwhile, the IMF lowered their growth forecasts for the U.K as they expect Europe’s second largest economy to shrink 2.8% in 2009, which could force the Bank of England adopt a zero-interest rate policy over the near-term in order to avoid a deep and prolonged recession. Discuss the topic and your trade ideas in the GBP/USD Forum.