Euro Weakens on Rate Cuts Speculations

After consecutive days rallying against the dollar and the yen, the euro fell on speculations that the European Central Bank will cut its interest rates to stop the deepening recession to cause more damages in the bloc’s economy.

The European Commission declared yesterday that the Eurozone economy will contract around 4 percent this year, a more pessimistic forecast than previous ones, which caused the euro to slid against all major currencies. The U. S. dollar had a day of gains after positive financial speculations from the Wall Street Journal, increasing demand for the currency. The deepening recession in Europe has been a major concern for the ECB, which is facing the worst economic crisis since the Second World War, and rates are expected to hit more record lows, as the economy is not showing solid signs of recovery.

Analysts said that at every report, most of the European countries downgrade their growth expectations, and countries that were a model of economic success such as Ireland, are forecast to contract more than 10 percent in 2009, influencing heavily on ECB policy makers’ decisions, which have set the lowest interest rates since the creation of the euro. A part from the rate cuts, other measures are expected to be taken as the recession deepens, pushing investors away from the euro.

The EUR/USD rose in the intraday from 1.3290 to 1.3374 but is entering a downtrend. The EUR/AUD fell from 1.8022 to 1.7968.

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Brazilian Real Hits Six-Month High as Commodity Prices Rise

The Brazilian currency has been rallying against the dollar since risk appetite has increased last week on global markets, a rise in commodity prices and the domestic stock market helped the currency to strengthen.

Brazil’s real and the South African rand are the two best performing currencies since the optimism has returned to global financial markets, which made traders leave refuge currencies such as the yen, to put money in higher-yielding assets like the previously mentioned currencies. The Brazilian stock exchange has risen 6 percent this Monday, and investors are seeing their first days of gains since its valued dropped by half last year, in the worst moment of the global slump. Metallic commodities and the oil have surged with the mass optimism in global markets, which also contributed to spur demand for the Brazilian currency.

Opinions in Brazil are indirectly favorable for the national currency, as economists focus in the stock market recovery, they affirm that a natural consequence for the improvement in stock prices will bring more foreign investments to the country, pushing the real up. Against the dollar, Brazil’s real hit a 6-month high, but considering its pre-crisis price, it still has space for continuing this uptrend.

USD/BRL traded at 2.1146 from a previous price of 2.1818. EUR/BRL closed at 2.8304 from 2.8904 in the intraday.

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Yen Strengthens as U.S. Banking Funds Concerns Arise

The yen and the dollar rose against the euro after U.S. regulators affirmed that the Bank of America Corp. will need more than $30 billion in new capital, spurring demand for refuge currencies.

The Japanese currency climbed against all major currencies for the first day since last week, when improved economic conditions around the world boosted the attractiveness of riskier assets. After a report reviewing American banks, their need for new capital made the investors to take a conservative step back towards refuge currencies, which favored the yen. The euro had the biggest fall against the Japanese currency, on growing speculations that interest rates will be cut in the Eurozone, which may follow other non orthodox measures to be taken as an attempt to stop the deepening recession in the European economic bloc.

After a week of optimism and rallies in high-yielding assets, some negative data coming from both North America and Europe brought the markets down this Wednesday. According to experts, the current global economic conditions still require a moderate level of risk aversion, since there is no solid evidence that the main world economies are «back on track». Traders taking profit from recent gains with the euro have also favored the yen.

EUR/JPY traded at 130.99 falling from 132.03, following the same movement, USD/JPY dropped from 98.85 to 98.44.

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Oil and Stocks Push Canadian Dollar Down

The loonie weakened for the first time in six days as the crude oil price fell, making Canada’s currency to drop from a 6-month high.

The Canadian currency has been posting consecutive gains against its North American counterpart since November, and this week negative market prices associated with the loonie, combined with speculations that the government may take measures for stopping the Canadian dollar rally brought the national currency down from its recently reached 6-month highest level. The oil future contracts dropped by more than 1 percent following the day of losses for the stock markets, and being Canada one of the main suppliers of oil to the United States, its followed this movement.

Analysts stress on the direct relation between commodities, stocks and the loonie, being the latter one of the currencies with the highest level of correlation with equity markets. The rumors in Canada that the government may adopt quantitative easing, preserving the national exporters by stopping the loonie to strengthen, also are raising eyebrows and creating a bearish sentiment for the Canadian currency, which may already enter a downtrend in the short-term.

USD/CAD remained stable, while AUD/CAD rose from 0.8715 to 0.8742. In Asia, CAD/JPY dropped from 84.45 to 83.22.

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Australian Dollar Hits 7-month High on Favorable Employment Data

The Aussie rose against the yen after a regional jobs report in Australia showed an increase in employment conditions and data.

The yen had a day of losses against the main currencies in Oceania, after continuous evidences that the global financial situation may be improving, pushing investors towards high-yielding assets and decreasing the risk aversion sentiment on equity markets. In Australia, after a report showing gains on regional employment, doubts on whether the national interest rates shall have further cuts were lifted, making the Aussie to hit a 7-month high against the weakening yen. The kiwi followed the Australian dollar, and posted gains against the Japanese currency after better-than-expected unemployment numbers were released.

Risk appetite is growing in Asian markets, which will certainly bring investors to buy Australian assets, according to experts. Since last week, when concerns that the swine flu would deepen the recession ended, the global markets witnessed the sharpest rally since the global slump started last year, with investors leaving refuge currencies such as the yen and the Swiss franc to buy stocks and currencies like the Aussie. Analysts also indicate that a recovery in commodity prices may bring the Australian dollar to higher levels.

AUD/JPY rose sharply from 72.88 to 75.08, NZD/JPY followed, rising from 57.22 to 58.87. EUR/AUD fell from 1.7950 to 1.7604.

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Euro Rises Slightly After ECB Interest Rate Cut

The euro had a slight rise against the dollar after the European Central Bank cut its benchmark interest rate to 1 percent, a record low for the European economic bloc.

The speculations that the ECB would cut its rates were confirmed today after the European policy makers set the interest rate to 1 percent in the Eurozone, an effort to avoid the current severe recession to deepen. After the ECB statement, traders are focusing to watch Jean-Claude Trichet’s declarations on what kind of measures will be taken to ease the economic crisis in the region. The euro posted gains against the dollar and the yen, as risk appetite grows, but also against the pound, which was previously rallying against the European common currency.

Analysts are expecting the euro to strengthen if unconventional measures from the ECB will be taken in order to revive the bloc’s economy. It is highly possible that quantitative easing will be considered in the Eurozone, and as some ECB council members have stated, the central bank is likely to buy debt to increase the amount of money in the economy. Even if the euro is likely to strengthen, a certain amount of unpredictability surrounds the future of the euro currency pairs.

The EUR/USD currency pair traded at 1.3348 rising from 1.3305 in the intraday comparison. EUR/GBP remained stable fro yesterday’s price, as it reversed a downtrend after the ECB rate cuts.

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US Dollar Positioning Mixed Against Forex Majors

US Dollar positioning is mixed against major counterparts after a humbling week that saw an index of the currency’s average value break below support at a key trend line. That said, the trend bias against the Euro and the British Pound looks to continue to favor the greenback, with the latter offering a clear selling opportunity.

EUR/USD

Strategy: Pending Short

Weekly Profit / Loss: +2108 pips

We first sold EURUSD at 1.5510. Earlier this week, we exited the position as US Dollar Index broke below trend line support, booking 2108 pips in profit. We now take a step back to reassess the overall trend: looking at weekly bars, we see that EURUSD is setting up a Descending Triangle, a bearish continuation pattern, broadly favoring a breakout below support marked by the double bottom near 1.2530. While near-term positioning does not yield a clear entry signal, we continue to see EURUSD losses ahead and will monitor prices for selling opportunities.

Short-Term Forex Technical Outlook: NZD/USD

The New Zealand dollar surged higher this week, and broke above the 200-Day SMA for the first time since May 2008, and we may see the NZD/USD continue to retrace the sell-off from October over the following week however, fundamental headwinds could drag on the exchange rate as the RBNZ continues to hold a dovish policy stance.

Currency Pair: NZD/USD

Chart: 60 Min Charts

Short-Term Bias: Flat

Analysis

The New Zealand dollar surged higher this week, and broke above the 200-Day SMA for the first time since May 2008, and we may see the NZD/USD continue to retrace the sell-off from October over the following week however, fundamental headwinds could drag on the exchange rate as the RBNZ continues to hold a dovish policy stance. After reaching a high of 0.6349 in October, the kiwi-dollar slipped to a low of 0.4894 in March due to a surge in risk aversion, and as the OECD calls for the RBNZ to lower the cash rate to 2.00%, expectations for further easing paired with a weakening outlook for growth and inflation is likely to weigh on the pair over the near-term. Over the next few hours of trading, we may see the NZD/USD make another attempt to push above 0.6030-40 (78.6% Fib) however, as the RSI approaches overbought territory, we may see the pair fall lower to fill-in the gap from the 120 SMA. Nevertheless, as U.S. non-farm payrolls are scheduled for release later today, a dismal labor report could weigh on the markets, and we may see the kiwi-dollar lose ground following the release as the reserve currency continues to benefit from safe haven flows. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.

forex reserves

US dollar bills are collected at a local bank in Beijing. China's forex reserves, the largest in the world, fell to US$1.9121 trillion at the end of February, from 1.9135 trillion a month earlier, the country's central bank has announced.

(AFP/File)