Euro on the fall

Risk appetite took a step backwards and the euro dipped but not a lot really and with Europe re-joining the fray (although not with any real commitment as yet) it doesn’t appear that sentiment re currencies, interest rates or sovereign debt issues has changed one iota.

Trading sessions in the days around the weekend were light in volume and low in movement with thin US markets almost totally on their own for long periods. We did see commodities and equities ease as a result of a decision from a major futures exchange to increase the margin for trading silver prompting a wave of profit taking in both silver and gold.

This then filter through to forex trading and, coupled with a comment from ECB President Trichet who said that maintaining a strong Dollar was in the US interest, caused the Greenback to make a bit of a recovery. Last Friday’s data from the US was on the slightly weaker side of ‘as expected’ with new home sales roughly in line but the Dallas Fed manufacturing index marginally softer. With the escalation of tensions in the Middle East / North Africa region now encompassing Syria, the Euro has headed back to its last week’s highs, with the Dollar again recording fresh lows against the Swiss Franc as oil once again turns higher.

We are scheduled to get several risk events this week that will test the market’s resolve on its bearish stance for the Dollar. The first of these is the FOMC rate announcement tomorrow afternoon but more important will be the press conference that follows. Despite growing concern that 1st Qtr GDP in the US will emerge as softer than originally hoped, expectation is that Ben Bernanke will send a clear signal to the market that the current tranche of QE, scheduled to end in June, will finish as planned. There is currently no reflection of tightening monetary conditions in the forex market so, dependent upon the tone of the Chairman’s comments tomorrow, there appears good potential for a stronger Dollar going forward.

The preliminary estimate of 1st Qtr GDP for the UK is also due tomorrow and this could quite easily be the final nail in the coffin for an imminent tightening by the MPC. Expectations surround an early guess of a rise of 0.5% for the quarter but recent evidence does suggest that it is the downside that is most vulnerable here. Anything less than this level will be viewed with dismay and leave MPC member Andrew Sentance with little chance of seeing his long demanded hike in interest rates come to fruition. His term of office finishes at the end of May so the get together on the 5th, will be his last meeting on the committee. He is scheduled to speak today just before 2.00pm and no prizes for guessing what his subject matter will include.

Later in the week we are also due to get both inflation and unemployment data from Germany and the Eurozone, with the outcome of both likely to confirm a further and imminent rise in Euro interest rates. Plenty of economic data from the US as well with the important consumer confidence number today, housing data on Thursday and the Chicago PMI on Friday. We are then back on the Bank Holiday trail with the wedding induced day off for the UK and Japan also on holiday for their National Day. This will leave the week ending as it began, light on volume.