The European single currency came crashing on Tuesday after data showed the Euro-Zone economy recorded its deepest ever quarterly fall in the 4-quarter of 2008. As a result, the currency market moved back to the U.S currency after optimism regarding the European economy faded. The USD which is seen as a safer bet than others currencies in times of market stress will likely keep drawing demand as investors stay away from riskier assets.
The USD has begun a moderate rally these past two days, starting from as high as 1.3575 against the EUR, the greenback is now trading near the 1.3175 price level. An even sharper price rally began this morning during the early trading hours when the release of poor stock data emerged from Wall Street. The negative economic outlook for first quarter stock performance has many traders returning to their safe-haven investments – namely, the U.S. Dollar.
After witnessing a sharp 70 point drop, the EUR/USD began to stabilize while maintaining its downward posture. Against the GBP, the greenback made similar gains, rising from 1.4950 yesterday to as high as 1.4682 in today’s early hours. Surprisingly, the USD saw no significant change in value versus the Japanese Yen, which may lend strength to the notion that the JPY is also being picked up as a potential safe-haven. So long as stocks and other equities continue to under-perform, due to the weakening global economy and rising metal prices, the USD may regain its recently diminished safe-haven status and return to levels not seen in over two weeks, perhaps to the 1.3000 price by the day’s end.
Looking over the economic calendar may lend some insight into how the USD will perform through the second half of this week. The ever-increasingly important report on Crude Oil Inventories is due to be released later today. If inventories continue growing it could signal a further lack of real growth in the economy and continue to push the USD higher throughout its pairs and crosses. On Thursday, of course, we will also see two highly important data releases: the US Trade Balance report and unemployment figures. Both are due to be released tomorrow at 12:30 GMT and will likely carry a heavy impact on the value of the Dollar. EUR
