special reports

Euro and Pound Add to Gains On Light Volatility (Euro Open)

Monday, 19 January 2009 05:01:22 GMT  |  Luis Gil, DailyFX Research

Australian inflation continued to ease significantly in December, offering the Reserve Bank with the opportunity to add to the rate cuts it had made throughout the second half of 2008. The news, however, did little to shake the Australian Dollar’s pursuit against it’s U.S. counterpart. Traders of the Euro and Pound also saw their balance sheet improve as the U.S. Dollar continued to slip against the two European currencies, ahead of the inauguration of U.S. President-Elect Obama.

Key Overnight Developments

• Australian TD Securities’ Inflation Measure Drops in December
• Japanese Industrial Production Plummets


Critical Levels



The Euro added to the gains it had made at the end of the previous week as traders braced for the day ahead. Sterling saw itself rise for a 4th day against the greenback as a lack of volatility offered little opportunity for selling. Overall both currency pairs remained virtually flat with almost no bumps to throw off each one’s respective route.


Asia Session Highlights



Australia’s annual inflation rate slowed to 2.2% according to TD Securities’ recent estimate for December. November saw prices rise by 3.NE0% annually. At one point, in June, inflation rose to a rate as high as 4.8%. Much of the downward pressure seen since the summer has come on the back of plummeting energy prices and slowing consumer demand. With output nearly stagnating to 0.1% in the 3 months leading up to September, demand for goods has slowed to such a pace that its effect on consumer demand has forced prices southward. As Australian growth reaches uncomfortable lows, declining inflation may put pressure on the Reserve Bank to add to its aggressive policy stance that dominated the latter half of the past year. Unlike its counterpart in the U.S., who has now adopted quantitative easing due its near zero percent interest rate, Australia’s 4.25% still has room to be utilized for growth stabilization purposes

U.K. Housing Prices unsurprisingly fell for the third consecutive month in January as rising unemployment reduced demand for newly constructed and for sale homes. The average house in the U.K. fell in value by 1.9% to £213,570 ($317,000). In 12 months through the month, housing fell 7.3%.

On the Japanese front, Industrial Production continued to plummet for a third consecutive month, falling by 8.5% in November. With the shipments portion of the metric decreasing by 8.4% alone, it seems to be that declining exports have been the driving force of the production slowdown. Demand for cars and big ticket electronics alone have become less attractive due to the Yen’s gaining strength and overall slowing global consumption.


Euro Session: What to Expect



Swiss Retail Sales are expected to have slowed to an annualized 1.5% through November, down from 2.9% the month prior. Keep in mind that inflation in the month of November actually turned into deflation; prices fell by 0.7%. As such, the Retail Sales forecast is expected to be substantially lower than the actual figure for the previous month where prices rose 0.5%. November also saw the unemployment rise by 0.1% to 2.7%. The rise here, would also add downward pressure to overall sales figures.

Seasonally adjusted Euro-Zone Construction Output in November may actually fall after having risen by the most in eight months. As demand for housing and new business continues to be negatively affected by stagnating growth in the region, one can only expect to see construction go down with it. Though because of the forward seeking expectations that investors generally exhibit, those who see growth at the end of 2009 may have begun construction projects in November.


Related Articles:

Forex Trading Weekly Forecast - 01.19.09
A Broad GBPUSD Range Meets The Promise of Volatility Next Week


To contact Luis regarding this or other articles he has authored, please email him at lgil at dailyfx dot com.

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