Monday July 7, 2008 - 10:28:27 GMT
Share This Story
FXCM - www.dailyfx.com
Forex Research - Euro Selling Persists, Pound Clobbered -Is UK Headed For A Recession?
Euro liquidation continued at the start of the week as traders pared back their expectations of further rate hikes from ECB
â€˘ Japanese Yen: Up 100 on better Nikkei and dollar strength
â€˘ Euro: Liquidation continues as yield expectations are pared back
â€˘ British Pound: Selling intensifies as evidence of recession grows
â€˘ US Dollar: No Data today
Euro Selling Persists, Pound Clobbered â€“ Is UK Headed For A Recession?
Euro liquidation continued at the start of the week as traders pared
back their expectations of further rate hikes from ECB in light of
growing evidence that growth in the region was beginning to slow down
materially. The large decline in German Factory orders on Friday
weighed on the unit as the double whammy of high exchange rates and
higher interest rates appears to be taking its toll on the critical
The EURUSD is clearly in a funk. We stated in our weekly Dollar: Is The
Turn For Real? â€śSo is this turn in the dollar for real? In the short
term we think the answer is yes. Now that further rate hikes from the
ECB appear to be very much in doubt, the greenbackâ€™s strength is likely
to come not so much from any shockingly positive US economic news, but
rather from further speculative unwinding of euro long positions.â€ť That
unwinding may continue this week possibly testing the 1.5500 level.
Although the EURUSD was down tonight, the real weakness was in the
pound where Industrial Production results showed a collapse in demand.
Not only was the data much worse than forecast dropping â€“0.8% versus
â€“0.1% expected, but the readings from the monthâ€™s prior were revised
downward. Given the massive increases in energy costs, the data
suggests that the UK manufacturing sector is likely to see even more
weakness in the months ahead as producers battle skyrocketing input
costs and dampened demand.
The BoE which hosts its Monetary Policy meeting this Thursday, faces
very unpleasant policy choices. UK monetary authorities continue to be
concerned about the threat of inflation but may now have to respond to
the very real possibility of a recession. Last week construction,
manufacturing and service sectors all produced readings below the 50
boom/bust line indicating that a wide swath of UK economy is now
While almost on one expects the BoE to ease on Thursday, the idea that
UK central bankers will keep rates steady for the rest of the year
appears to be more and more suspect by the day. If UK labor markets
begin to crater, the pressure on the BoE to ease will become immense.
The pound therefore is likely to see more selling pressure in days
ahead, especially on the crosses as markets begin to price in the
possibility of rate cuts before year end as UK economy comes to
Will EUR/USD Trade Back to 1.60? Join us in EURUSD Forum
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."