Euro Open: US Dollar Strengthens As Risk Appetite Gives Way Across Financial Markets

Daily Forex Fundamentals | Written by DailyFX | Dec 01 08 06:26 GMT |

Forex markets continued to follow risk trends as the US Dollar was boosted by profit-taking on Asian stock exchanges. Overnight economic data saw Australian manufacturing sentiment drop to the lowest in six years while Japanese car sales plunged to the worst in nearly 3 decades. German Retail Sales numbers headline the calendar in European trading hours. Key Overnight Developments Australian Manufacturing Sentiment Lowest in 6 Years Japanese Vehicle Sales Lowest Since at Least 1980 Bank of Japan to Hold Emergency Meeting on New Lending Scheme The Euro opened the trading week on a weaker note, slipping as low as 1.2620 before rebounding back towards 1.27 late into the session. The British Pound followed suit, dropping to test pivot support near 1.5280 before correcting back above the 1.53 level. Asia Session Highlights A handful of low-level Australian releases failed to excite forex markets: industrial-sector sentiment fell to the lowest in at least 6 years as AiG Performance of Manufacturing Index fell to 32.7; TD Securities Inflation suggested price growth slowed to 3.0% in the year to November, the most sluggish in 14 months; and the pace of growth in Company Operating Profits slowed by nearly 67% to register at 5.2% in the third quarter from a revised 15.7% in the three months to June. New red ink on the calendar is passing by unnoticed as traders have long since priced in acute economic slowdown for the larger antipodean nation. Indeed, the Reserve Bank of Australia is expected to shave an additional 1% off borrowing costs later this week. Japanese data pointed even lower as Vehicle Sales fell a whopping -27.3% in the year to November, the worst reading ever recorded and the lowest since at least 1980. This marks the fourth straight month of consecutive declines. Separately, Japan's public broadcasting service NHK cited anonymous sources as saying that the Bank of Japan will hold an emergency meeting this week to discuss plans on creating a lending facility for domestic firms struggling to get financing in current market conditions. The plan would allow banks to use corporate bonds with lower credit rations as collateral to gain access to BOJ funds. Looking past fundamentals, price action again focused on the direction of risk appetite across financial markets. Asian stock exchanges slipped lower overnight as jittery traders rushed to book profits following last week's rally. In keeping with a now familiar pattern, the outflow from risky assets boosted the US Dollar. Indeed, an average of the greenback's value against six top currencies is now 95% correlated with the MSCI Index of global stock performance. Euro Session: What to Expect German Retail Sales figures headline the calendar in European trading hours, with expectations calling receipts to shrink -0.3% in the year to October. The data series is very volatile so traders are unlikely to take the release as strongly indicative of the retailing climate in the Euro Zone's largest economy. Looking elsewhere, the outlook sales activity looks decidedly grim: industrial production, a key driver of employment and wage growth, has fallen to the lowest in over 5 years; real estate values have are at the second-lowest levels in at least as long; and the DAX benchmark stock index has fallen over 50% so far this year. In sum these developments have vastly eroded household wealth, sending consumer confidence to the lowest level in 3 years. The outlook is likely to remain dour with Germany confirmed to be in recession after economic growth shrank in the second and third quarters. The European Central Bank is expected to cut interest rates by at least 0.50% later this week with 135 basis points in total easing forecast for the next 12 months. DailyFX