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Daily Forex Overview

  • The U.S. dollar, coming off one of its best weeks against the euro in months and probably will consolidate those gains this week after the Group of Seven leading industrial nations provided little new guidance on exchange rates.

    ECB President Jean-Claude Trichet warned against betting that the central bank would soon join the U.S. Federal Reserve in cutting rates.

    The EURUSD has dropped over 350 pips since the beginning of the week. Economic data and the European Central Bank's admission that the economy could weaken further has caused many traders to believe that the next move by the ECB will be to cut rates and not to raise them.

    US wholesale inventories rose 1.1% in December, and November was revised up from 0.6% to 0.8%.

    With no major economic data released today, the British pound recovered marginally against the US dollar.

    The Australian dollar was higher late Monday as hawkish sentiment from the Reserve Bank of Australia bolstered expectations of further interest rate rises, lending support for carry trades.

    Canada's dollar rose versus the U.S. currency from 1.0105 to 0.9947 after a government report showed employers added more jobs in January than economists forecast.

    MARKET EXPECTATION

    The market expects German growth to slow from an annualized pace of 2.5 percent to 1.8 percent and for Euro zone growth to slow from 2.7 to 2.2 percent. Meanwhile Switzerland released stronger numbers. The SECO consumer climate index and consumer prices both beat expectations.

    This week there are a lot of UK economic data on the calendar, which means that there will be decent volatility in the pound. We are expecting producer prices, consumer prices, trade balance, employment data and the Bank of England Quarterly Inflation Report. Inflation should be strong, but the labor market is expected to deteriorate further given the strains in the housing and financial markets.

    The European Central Bank has effectively eliminated its tightening bias and with the economy weakening quickly, the ECB's first rate cut could be delivered as early as April.

    Furthermore, the technical picture has begun to change and the arrow is now pointing upwards on EURUSD.

    Reserve Bank of Australia warns it might have to raise rates yet again to slow domestic demand.

    Financial markets in Tokyo will be closed on Monday for a national holiday and the Bank of Japan will announce its interest decisions on Friday and widely to keep interest rates unchanged at 0.5%.

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