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Currency Trading Update

Once again, the Australian dollar, Euro, and US dollar face the heaviest event risk over the next 24 hours:

Asian Trading Session
02/03 22:00 ET
Australian Retail Sales (DEC) - There will be some event risk on hand for the Australian dollar overnight as retail sales in Australia are forecasted to have grown 0.3 percent during December, confirming that 2008 was a year of lackluster consumption for the economy. Any increases are likely to be solely the result of spending on food, as sales of apparel, household goods, and at restaurants have been consistently weak throughout the second half of the year. Regardless, a reading in line with or more than expectations could lead the Australian dollar to rise overnight, but if the index unexpectedly falls negative, the currency could tumble as the markets will shift to price in greater potential for further rate cuts by the Reserve Bank of Australia.

European Trading Session
02/04 5:00 ET
Euro-zone Retail Sales (DEC) - Euro-zone retail sales will be released for December and will likely drive price action as it seems that the downturn in the economy has begun to speed up as of late, retail sales are expected to decline by as much as -0.2 percent for the month while the annual rate could remain negative at -1.4 percent. With job losses climbing and credit conditions still tight, retail sales are expected to weaken throughout the first half of 2009. If the release proves to be more disappointing than forecasts, the news could push the Euro lower on speculation that the European Central Bank will cut rates on Thursday. On the other hand, a holiday-spending boost to the index could lead to stronger-than-expected results and gains for the currency.

US Trading Session
02/04 10:00 ET
US ISM Non-Manufacturing Composite (JAN) - Conditions in US non-manufacturing sector - which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance - are anticipated to have worsened in January as the Institute for Supply Management index is estimated to fall to another record low of 39.0 from 40.1, just above the record low of 37.4 reached in November. Indeed, consumer confidence remains exceptionally weak, as the Conference Board’s measure also fell to a record low of 37.7 during the same month. We already know that the US economy fell into recession in December 2007, but this data will help to gauge how long the recession will drag on for. Since risk trends have proven to be the greater driver of price action in the forex markets, a weaker than expected result could trigger flight-to-quality and thus, gains for the US dollar. Meanwhile, a surprisingly strong result could boost equities and weigh on safe-haven assets.

Terri Belkas
Currency Strategist
Forex Capital Markets LLC


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