Wednesday, 29 April 2009 11:45:55 GMT
Written by David Song, Currency Analyst
Full Article
The euro may face increased selling pressures over the next 24 hours of trading as economists forecast German unemployment to rise another 65K in April, and the labor market is likely to deteriorate further this year as the region faces its worst economic downturn in over half a century. A report by the Economy Ministry showed that industrial outputs fell for the six consecutive month in February after falling at a record pace in the previous month, which pushed the annual rate of production to -20.6% from a revised reading of -17.9% in January.
Trading the News: German Unemployment Change
What’s Expected
Time of release: 04/30/2009 07:55 GMT, 03:55 EST
Primary Pair Impact: EURUSD
Expected: 65K
Previous: 69K
Impact the German Unemployment Change has had on EURUSD over the last 2 months
March 2009 German Unemployment Change
Unemployment in Germany increased 69K to 3.4M in March, which raised the jobless rate to 8.1% from a revised reading of 8.0% in February, and the labor market is expected to weaken further as the region faces a deepening recession. As the downturn in the global economy intensifies, firms may continue to scale back on production and employment as demands from home and abroad falter, and conditions are likely to get worse as Europe’s largest economy is expected to face its worst economic slump in over half a century. As a result, the European Central Bank is anticipated to ease policy further next month, and may lower the overnight lending rate by 50bp to a record-low of 1.00% however, as President Trichet remain reluctant to overshoot the interest rate, the central bank may adopt a wait-and-see approach as they maintain their one and only mandate to ensure price stability.
February 2009 German Unemployment Change
The German labor market weakened for the fourth consecutive month in February as unemployment increased 40K to 3.31M. The data foreshadows a deepening recession throughout the region, and the outlook for growth and inflation remains bleak as trade conditions falter. Fading demands from home and abroad has certainly taken a toll on businesses throughout the fourth quarter, and firms may continue to cut back on production and employment as the downturn in the global economy intensifies. Meanwhile, the International Monetary Fund said that they expect Germany to contract 2.5% in 2009, which would be the biggest drop in growth since World War II, and as a result, the European Central Bank is widely expected to lower the benchmark interest rate by 50bp in March to a record-low of 1.50% after holding rates steady this month as policymakers attempt to stimulate the ailing economy.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
How To Trade This Event Risk
The euro may face increased selling pressures over the next 24 hours of trading as economists forecast German unemployment to rise another 65K in April, and the labor market is likely to deteriorate further this year as the region faces its worst economic downturn in over half a century. A report by the Economy Ministry showed that industrial outputs fell for the six consecutive month in February after falling at a record pace in the previous month, which pushed the annual rate of production to -20.6% from a revised reading of -17.9% in January, while factory orders dropped at an annualized pace of -38.2% during the same period to mark the worst slump since records began in 1991, and the conditions are likely to get worse as firms continue to face fading demands from home and abroad. German exports fell for the fifth consecutive month in February, while retail sales unexpectedly slipped lower from January, and the data reinforces a weakening outlook for growth and inflation as economic activity deteriorates at a rapid pace. Moreover, producer prices marked its first annual decline in five-years as price pressures dropped at its fastest pace since 2002, while import prices fell the most in nearly 22 years as the index slipped 7.1% from the previous year, and the economic outlook remains bleak as the International Monetary Fund forecasts Europe’s largest economy to contract 5.6% this year and expects the annual growth rate to fall another 1.0% 2010. As a result, Bundesbank President Axel Weber stated that ‘positive growth rates aren’t likely before the second half of next year’ and went onto say that he expects the inflation rate to turn negative in the months ahead during an interview last week however, Mr. Weber, much like ECB President Trichet, remained reluctant to overshoot the benchmark interest rate, saying that a quarter-percent cut to 1.00% would be a ‘reasonable lower limit’ to stimulate the ailing economy. Meanwhile, ECB council member Yves Mersch noted that the spillover efforts of the financial crisis ‘is far from extinguished,’ and stated that ‘the risks weighing on financial stability, as well as on macroeconomic equilibrium, have intensified’ throughout the first quarter as a result of the ‘deleveraging effects and the acute blockage of the interbank credit market,’ and the comments suggests policymakers will continue to lower borrowing costs further as the economy faces a deepening recession. Nevertheless, as the Governing Council fails to meet on common ground, market participants have argued that the central bank has done too little too late and will need to step up its effort to steer the economy out of the worst recession since World War II, and the downturn in the labor market reinforces a weakening outlook for region as households face fading demands for employment.
Trading the given event risk favors a bearish outlook for the single-currency as the jobless rate is anticipated to push higher in April however, bullish price action following an enhanced labor report could set the stage for a long euro trade. Therefore, if unemployment rises less than 55K from the previous month, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance), and this risk will establish our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
In contrast, as businesses continue to scale back on production and employment in response to the downturn in the world economy, deteriorating trade conditions paired with the drop in household spending could lead firms to slash their work force as economic activity falters. As a result, an in-line print or a rise of more than 65K in German unemployment would lead us to hold a bearish outlook for the single-currency, and we will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
Written by David Song, Currency Analyst
Full Article
The euro may face increased selling pressures over the next 24 hours of trading as economists forecast German unemployment to rise another 65K in April, and the labor market is likely to deteriorate further this year as the region faces its worst economic downturn in over half a century. A report by the Economy Ministry showed that industrial outputs fell for the six consecutive month in February after falling at a record pace in the previous month, which pushed the annual rate of production to -20.6% from a revised reading of -17.9% in January.
Trading the News: German Unemployment Change
What’s Expected
Time of release: 04/30/2009 07:55 GMT, 03:55 EST
Primary Pair Impact: EURUSD
Expected: 65K
Previous: 69K
Impact the German Unemployment Change has had on EURUSD over the last 2 months
March 2009 German Unemployment Change
Unemployment in Germany increased 69K to 3.4M in March, which raised the jobless rate to 8.1% from a revised reading of 8.0% in February, and the labor market is expected to weaken further as the region faces a deepening recession. As the downturn in the global economy intensifies, firms may continue to scale back on production and employment as demands from home and abroad falter, and conditions are likely to get worse as Europe’s largest economy is expected to face its worst economic slump in over half a century. As a result, the European Central Bank is anticipated to ease policy further next month, and may lower the overnight lending rate by 50bp to a record-low of 1.00% however, as President Trichet remain reluctant to overshoot the interest rate, the central bank may adopt a wait-and-see approach as they maintain their one and only mandate to ensure price stability.
February 2009 German Unemployment Change
The German labor market weakened for the fourth consecutive month in February as unemployment increased 40K to 3.31M. The data foreshadows a deepening recession throughout the region, and the outlook for growth and inflation remains bleak as trade conditions falter. Fading demands from home and abroad has certainly taken a toll on businesses throughout the fourth quarter, and firms may continue to cut back on production and employment as the downturn in the global economy intensifies. Meanwhile, the International Monetary Fund said that they expect Germany to contract 2.5% in 2009, which would be the biggest drop in growth since World War II, and as a result, the European Central Bank is widely expected to lower the benchmark interest rate by 50bp in March to a record-low of 1.50% after holding rates steady this month as policymakers attempt to stimulate the ailing economy.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
How To Trade This Event Risk
The euro may face increased selling pressures over the next 24 hours of trading as economists forecast German unemployment to rise another 65K in April, and the labor market is likely to deteriorate further this year as the region faces its worst economic downturn in over half a century. A report by the Economy Ministry showed that industrial outputs fell for the six consecutive month in February after falling at a record pace in the previous month, which pushed the annual rate of production to -20.6% from a revised reading of -17.9% in January, while factory orders dropped at an annualized pace of -38.2% during the same period to mark the worst slump since records began in 1991, and the conditions are likely to get worse as firms continue to face fading demands from home and abroad. German exports fell for the fifth consecutive month in February, while retail sales unexpectedly slipped lower from January, and the data reinforces a weakening outlook for growth and inflation as economic activity deteriorates at a rapid pace. Moreover, producer prices marked its first annual decline in five-years as price pressures dropped at its fastest pace since 2002, while import prices fell the most in nearly 22 years as the index slipped 7.1% from the previous year, and the economic outlook remains bleak as the International Monetary Fund forecasts Europe’s largest economy to contract 5.6% this year and expects the annual growth rate to fall another 1.0% 2010. As a result, Bundesbank President Axel Weber stated that ‘positive growth rates aren’t likely before the second half of next year’ and went onto say that he expects the inflation rate to turn negative in the months ahead during an interview last week however, Mr. Weber, much like ECB President Trichet, remained reluctant to overshoot the benchmark interest rate, saying that a quarter-percent cut to 1.00% would be a ‘reasonable lower limit’ to stimulate the ailing economy. Meanwhile, ECB council member Yves Mersch noted that the spillover efforts of the financial crisis ‘is far from extinguished,’ and stated that ‘the risks weighing on financial stability, as well as on macroeconomic equilibrium, have intensified’ throughout the first quarter as a result of the ‘deleveraging effects and the acute blockage of the interbank credit market,’ and the comments suggests policymakers will continue to lower borrowing costs further as the economy faces a deepening recession. Nevertheless, as the Governing Council fails to meet on common ground, market participants have argued that the central bank has done too little too late and will need to step up its effort to steer the economy out of the worst recession since World War II, and the downturn in the labor market reinforces a weakening outlook for region as households face fading demands for employment.
Trading the given event risk favors a bearish outlook for the single-currency as the jobless rate is anticipated to push higher in April however, bullish price action following an enhanced labor report could set the stage for a long euro trade. Therefore, if unemployment rises less than 55K from the previous month, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of EUR/USD. Once these conditions are met, we will set our initial stop at the nearby swing low (or reasonable distance), and this risk will establish our first target. Our second target will be based on discretion, and in an effort to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
In contrast, as businesses continue to scale back on production and employment in response to the downturn in the world economy, deteriorating trade conditions paired with the drop in household spending could lead firms to slash their work force as economic activity falters. As a result, an in-line print or a rise of more than 65K in German unemployment would lead us to hold a bearish outlook for the single-currency, and we will follow the same setup for a short euro-dollar trade as the long position mentioned above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.