special reports

Forex Traders Look Past Empty Euro Calendar to US Durable Goods Data (Euro Open)

Wednesday, 24 December 2008 05:03:07 GMT  |  Ilya Spivak, Currency Analyst

Forex markets were quiet in Asian trading, with the Euro was confined to a narrow, 70-pip range below the 1.3980 level. There is no data scheduled for release in European trading hours, but US Durable Goods Orders data could spark volatility, amplified by illiquid markets ahead of the Christmas holiday. Overnight, the BSI Survey showed that sentiment in Japan’s manufacturing sector hit a record low in the fourth quarter.

Key Overnight Developments

• Japan's Manufacturing Sentiment Hits Record Low in Q4
• Euro Price Action Turns Range-Bound Ahead of Holiday


Critical Levels 



The Euro was confined to a narrow, 70-pip range in overnight trading below the 1.3980 level. The British Pound saw a bit of upside, retaking the 1.4750 level but stalling ahead of the 1.48 mark.


Asia Session Highlights 

Japan’s BSI Large Manufacturing survey saw sentiment drop to the worst in at least 4 years and the worst on record. Firms have turned pessimistic as foreign demand for Japanese cars and electronics dwindled. Earlier this week, the Trade Balance sank deeper into negative territory as exports plunged a record 26.7% in November. The result echoes the latest Tankan Survey, which showed manufacturing sentiment fell sharply in the fourth quarter to match the lowest reading in since 1999. As we mentioned then, the result will “compound existing weakness in the labor market as firms cut back capacity, weighing on wages, incomes, and consequently pushing consumer spending lower.”

Attempting to revive export growth may be one of the few options still in play for policymakers: monetary easing has little scope with interest rates at just 0.10% and fiscal stimulus could be hit-or-miss given the Japanese consumer’s infamous proclivity to favor saving over spending. This opens the door for the government to step into the currency markets to drive down the Yen, making Japan’s products comparatively cheaper for foreign buyers. Indeed, top Japanese officials have publicly hinted at the possibility of intervention in recent weeks.


Euro Session: What to Expect 



There is no data scheduled for release in European trading hours, but US Durable Goods Orders data could spark volatility. US economic fundamentals have been viewed as the go-to barometer for the state of the global economy as whole, with traders hoping that recovery in the world’s largest consumer market will reboot demand worldwide. Expectations call for orders to shrink at a slower pace in November versus the preceding month (-3.0% vs. -6.2%), a slight improvement. Most traders have turned their attention away from the markets as the Christmas holiday approaches, making for very illiquid markets. This means a relatively small amount of volume is able to significantly affect the exchange rate, threatening knee-jerk volatility.


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

Resources

• free demo account
• forex courses
• open an account
• real time news
• free webinars