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Euro Pares Overnight Decline as Price Pressures Intensify, British Pound Extends Advance

Euro Pares Overnight Decline as Price Pressures Intensify, British Pound Extends Advance

2010-03-31 11:29:00
David Song, Currency Strategist
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Talking Points
•    Japanese Yen: Weakens Across the Board
•    Pound: Extends Three-Day Rally
•    Euro: German Labor Market Unexpectedly Improves
•    U.S. Dollar: ADP Employment, Factory Orders on Tap

Euro Pares Overnight Decline as Price Pressures Intensify, British Pound Extends Advance


Meanwhile, European Central Bank President Jean Claude Trichet said that it is “extremely important to anchor inflation expectations” during a press conference in Stockholm, Sweden and expects “market participants will progressively recognize” the extra ordinary efforts taken on by the Greek policy makers as the government aims to bring its public finances back in-line with the European stability pact.

Nevertheless, the CPI estimate for the Euro-Zone jumped to an annualized pace of 1.5% in March to mark the fastest pace of inflation since December 2008, while the jobless rate increased to 10.0% in February from 9.9% in the previous month, which is the highest reading since the single-currency was introduced in 1999. However, unemployment in Germany unexpectedly slipped 31K in March after falling a revised 1K during the month prior, which pushed the jobless rate down to 8.0% from a revised 8.1% in February. Despite the larger-than-expected rise in inflation, the ECB is widely expected to maintain dovish policy stance going into the second-half of the year as the Governing Council continues to see a risk for an uneven recovery, and the central bank may look to keep rates on hold throughout 2010 as they anticipate price pressures to remain subdued.

The British Pound tipped higher against the greenback for the fourth day to reach a high of 1.5099, but continued to maintain the narrow range from earlier this month as investors weigh the prospects for future policy. Meanwhile, consumer sentiment in the U.K. unexpectedly decline in March, with the GfK confidence survey slipping to -15 from -14 in February, and households may turn increasingly pessimistic towards the economy as policy makers continue to see a risk for a protracted recovery. As the private sector remains weak, the Bank of England is like to maintain a cautious outlook for the region, and the MPC is anticipated to maintain its current policy next month as the central bank aims to support the real economy.

U.S. dollar price action was mixed throughout the European trade, with the USD/JPY surging to a fresh monthly high of 93.59, and the greenback could face increased volatility going into the North American session as the economic docket is expected to reinforce an improved outlook for future growth. The ADP labor report is expected to show a 40K rise in private employment, which would be the first increase since January 2008, and the data could trigger a bullish move in the dollar ahead of Friday’s non-farm payrolls report as market participants project the world’s largest economy to have added 184K jobs in March. In addition, factory orders are forecasted to increase 0.5% in February after jumping 1.7% in the previous month, while business activity is expected to expand for the sixth consecutive month in March.


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Forex Weekly Trading Forecast - 03.29.10


To discuss this report contact David Song, Currency Analyst: instructor@dailyfx.com

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