Published: Tue, 10 Mar 2009 13:09:14 +0100

Positive Financial News Boosts Euro against Greenback

(CEP News) - Positive sentiment in equity markets is dragging down the U.S. dollar against the euro ahead of the North American trading session.

Risk appetite is emanating from the banking sector, following reports that Citigroup could have higher-than-expected earnings for the first quarter. According to an article in the New York Times, an internal memo from the bank said they earned more than $19 billion in the first two months of 2009.

The news has helped the euro retrace some of its losses, but the overall trend remains down. EUR/USD has moved steadily higher since the Asian session, but gains have been limited with the cross hovering around 1.27 USD.

Currency markets did not react to weaker-than-expected German trade balance data. According to the statistics office, Germany imported €58.1 billion in commodities in January, reflecting a 0.8% fall from December's levels. However, economists had expected a more pronounced decline of 3.5%, after import levels tumbled 4.8% in December, revised down from -4.1%.

Meanwhile, German exports totaled €66.6 billion in February, down 4.4% compared to the previous month. Expectations had been for only a 4.0% decline in exports, in line with the previous month's annualized fall, revised down from -3.7%.

Although currency markets shrugged off the German trade data, Boris Schlossberg, director of currency research at GFT said it could lead to further weakness. He explained that the trade data shows more downside risk to economic growth.

"While the euro may rebound on short covering dynamics in the near term, the long term economic outlook remains grim and the unit is likely to retest the 1.2500 [USD] level as more economic data hits the screen in upcoming days," he said.

Jamie Coleman, FX strategist from Forexlive.com, said it's difficult to determine any future direction for currency markets. He expects EUR/USD to continue bouncing around its current range as it reacts to rising risk aversion/risk appetite.

Coleman said he continues to expect investors to come in and buy at the 1.25 level. He added there is some reluctance in currency markets to see EUR/USD trade lower.

Euro/USD up 0.99 cents to 1.2710

USD/CAD down 1.33 cents to 1.2880

USD/Yen down 0.44 points to 98.41

GBP/USD up 0.65 cents to 1.3842

AUD/USD up 1.04 cents to 0.6422

Euro/Yen up 0.42 points to 125.07

Euro/GBP up 0.29 pence to 0.9183

GBP/CAD down 0.90 cents to 1.7829

CAD/Yen up 0.45 points to 76.43

Euro/CAD down 0.42 cents to 1.6369

The U.S. Dollar Index is down 0.49 points to 88.52

All data taken at 8:04 a.m. EDT

By Neils Christensen, neilsc@economicnews.ca, edited by Megan Ainscow, mainscow@economicnews.ca