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Can the Euro One Way Train Last?

Tue, Apr 1 2008, 11:50 GMT
by Benny Menashe

Finotec Group Inc.

Eur/Usd: This morning German retail sales came in at -1.6% from a forecasted 0.5%. Thursday’s consumer confidence was higher in Germany than expected coming in at 4.6 from an expected 4.4. Imports rose, standing at 1.1 from a previous 0.6. The Purchasing Managers' Index for Sweden's manufacturing industry fell to a seasonally adjusted 54.7 in March from 55.7 in February, Swedbank and the Swedish National Association of Purchasing and Logistics (Silf) said. "Despite that fact that Swedish industry grew at a slower pace during March, the PMI is still in the growth zone. The outcomes during the past five months show, however, that the decline in the PMI index has slowed, a sign that the industrial cycle has stabilized, even if on a lower level," they said.

UBS AG announced a first-quarter loss of $12 billion, raising concern European bank finances are deteriorating. The euro fell the most in eight days against the greenback this morning, currently trading in at $1.5661 8:43 GMT from yesterdays $ 1.5788. ``UBS's problems will put a lot of stress on the euro in the short term,'' said Hideki Amikura deputy general manager of foreign exchange at Nomura Trust and Banking Co. Ltd., a unit of Japan's largest brokerage. ``This news leaves an uneasy feeling that subprime losses are spreading through Europe.'' Today the euro also fell to 156.63 yen from 157.40. The yen slid to 99.95 per dollar from 99.69. “The euro may drop to $1.56 this month”, Amikura forecast.

However when it comes to the greenback, gains in the dollar may be limited before a U.S. report today that may show manufacturing contracted in March at the fastest pace since 2003. The Institute for Supply Management's manufacturing index fell to 47.5 last month, from 48.3 the previous month, according to a Bloomberg News survey. Deutsche Bank AG, the world's largest foreign-exchange trader, and Royal Bank of Scotland Group Plc cut their dollar estimates last month as global credit market losses climbed above $200 billion and reports signaled the U.S. economy may be shrinking. Private foreign investors sold a net $38.2 billion in U.S. securities in January, the most since September, the Treasury Department said March 17.

``We now view the U.S. economy as having slipped into recession while the rest of the world slows more modestly,'' said John Horner, a currency strategist in Sydney for Frankfurt- based Deutsche Bank. That scenario ``argues for further dollar weakness,'' he said. However an official ruling on whether the U.S. is in a recession is made by the National Bureau of Economic Research. Tip: traders believe the Euro will bounce back against the dollar from its low today.

Published on  Tue, Apr 1 2008, 11:58 GMT