Weekly Forex Round-up: EUR Declines on Lower German GDP Forecasts and ECB Meeting

on Dec 7, 2012


The euro declined today against the dollar and most of its major peers after the Bundesbank lowered its growth forecast of German GDP and the European Central Bank downgraded the euro-area.
The Frankfurt-based bank reduced its growth projection from 1.6 percent predicted in June to 0.4 percent and said that Europe’s largest economy will expand by 0.7 percent this year instead of the 1 percent previously forecast. The lower figures come as a result of the austerity drive that impacts the whole of Europe, including Germany. “Downward revisions by the Bundesbank acknowledge that the outlook, even for Germany, is looking poor. Germany has been holding up the euro area.” said Michael Sneyd, a currency strategist at BNP Paribas, as quoted by Bloomberg.

What moved the pair the most according to Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi, were comments from ECB President Mario Draghi who suggested the central bank might consider cutting the deposit rate in the first half of next year. This will keep the EUR/USD pair from advancing above 1.3000 and compounded with dollar negatives the crossing will be left range-bound over the coming months.

After reaching a morning low of 1.2917 at 10.20 GMT the EUR/USD pairing was changing at 1.2933/34 or 0.27 percent lower than yesterday.
The yen advanced against most major peers including the US dollar after an earthquake with a magnitude of 7.3 shook Japan. The USD/JPY pair fell to 82.18 but then clawed back after it became clear there was little damage from the earthquake.

!m[JPY Gains on News of 7.3 Magnitude Earthquake, GBP Falls Against the USD](/uploads/story/987/thumbs/pic1_inline.png)“The yen is being bought in a knee-jerk reaction to headlines on the earthquake,” opined FX Prime Corp senior managing director Marito Ueda. “Given the difference in the magnitude of this earthquake to last year’s, the impact on the currency has been quite limited. If we confirm bigger damage from the tsunami, we may see further buying of the yen.”

At 10.50 GMT the pairing was trading at 82.36/38 with support seen at 81.78, 81.68 and 80.63. On the upside the USD/JPY might encounter resistance at 83.15.
The pound weakened against the US dollar to an intraday low of 1.6015 before retracing some of its losses to 1.6023/25.
The Bank of England announced yesterday it is keeping interest rates unchanged at 0.5 percent and won’t be augmenting its asset purchasing programme. UK’s Trade Deficit numbers came out showing an expansion from £8.4 billion to £9.5 billion due to a drop in exports.
George Osborne, Chancellor of the Exchequer, said that his austerity programme will be extended by one year to 2018 and he will miss by a year his target to start cutting debt as a percentage of GDP in 2015.
The FXstreet.com quoted William Moore, Technical Strategist at RBS, who thinks that if the market gets back into the bear channel then support below the psychological level of 1.6000 is seen at 1.582 and 1.5750.


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