Finotec News Archive - January 12 2009

The Euro is gathering interest amid speculations that ECB will cut rates

Erez Frisch
12 January 2009

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The euro fell for a second day against the American currency as traders increased bets that the European Central Bank will cut interest rates on Thursday 15 January to the lowest since 2005 this week to help pull the European economy out of recession.

The currency has also dropped to a one-month low versus the yen as the International Monetary Fund’s Managing Director Dominique Strauss-Kahn said Europe is “underestimating the needs” of fiscal stimulus for the 16-nation region’s economy. Leading analysts believe now that the Euro may fall to $1.3385 and the US dollar may drop to 89.10 yen this week, after the ECB cut its main refinancing rate by 1.75 percentage points in the fourth quarter, while the Federal Reserve reduced its benchmark rate by 2 percentage points to as low as zero in the same period.

Sales at U.S. retailers declined 1.2 percent last month, capping the longest stretch of declines since records began in 1992 and investors are now holding their breath ahead of the Commerce Department’s report due on Wednesday 14 January and American unemployment figures the following day. Any losses in the dollar may be limited as U.S President-elect Barack Obama seems to be making “significant” changes to his economic stimulus program which might be pushing the dollar to $1.3300 per euro this week.

Japan’s currency gained for a fourth day against the Australian and New Zealand dollars before a U.S. government report this week that may show retail sales contracted for a fifth month in December, adding to signs a recession in the world’s largest economy is deepening. The markets now expect the Australian dollar to head lower against the dollar and the yen in line with weaker equity markets.

And finally, Ukraine agreed to sign a new version of an accord to authorize monitoring of natural gas flows, paving the way to resume Russian gas shipments through country to the rest of Europe. If a deal will be reached, this could ease up the pressure onto oil prices after energy companies in the Balkans which had switched overnight to alternatives fuels will resort back to the old status quo.

Finotec Analysis Team
12 January 2009

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