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Euro Strengthens for Second Day After German Confidence Improves - (Bloomberg)

Posted by Chris Advincula on Sep 17, 2013 7:24:00 AM
By Lukanyo Mnyanda and Lucy Meakin - Sep 17, 2013

The euro strengthened for a second day against the dollar and yen after an industry report showed German investor confidence improved this month.

The common currency rose versus 12 of its 16 major peers as the data added to evidence Europe’s largest economy is gaining momentum. The dollar was little changed versus the yen amid speculation the Federal Reserve will decide to reduce the pace of bond purchases at a two-day meeting starting today. India’s rupee fell the most in two weeks on speculation a reduction in U.S. stimulus will hurt demand for emerging-market assets.

“This shows that the overall situation in the euro-zone economy is not that bad at all,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “It should be supportive of the euro.”

The euro advanced 0.2 percent to $1.3361 as of 10:41 a.m. London time after rising to $1.3386 yesterday, the strongest level since Aug. 28. The 17-nation currency rose 0.3 percent to 132.47 yen. The dollar was at 99.14 yen after dropping 0.3 percent yesterday.

The euro has gained 4.8 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 3.4 percent, while the yen tumbled 11 percent.

The ZEW Center for European Economic Research said its index of German investor and analyst expectations, which aims to predict economic developments six months in advance, rose to 49.6 in September from 42 in August. That’s the highest level since April 2010.

‘Gaining Momentum’

“The financial-market experts hold the view that the German economy is still gaining momentum,” ZEW President Clemens Fuest said after the report. “The experts’ economic optimism has increased due to the improved economic outlook for the euro zone, although recently released economic data for Germany have fallen short of expectations.”

The Bloomberg U.S. Dollar Index approached a five-week low as the exit of Lawrence Summers from consideration to be next Fed chairman fueled bets the central bank will be slower to reduce bond purchases that tend to weaken a currency.

“People have been paring their bets on Fed tapering, so we have seen the dollar on a softer footing,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “When Summers was pitched to be the next Fed chair, it was being viewed by investors as a regime change that could lead to much more hawkish policy.” 

Fed Meeting

The Federal Open Market Committee will decide to slow its monthly bond purchases to $75 billion from $85 billion this week, according to the median estimate of economists in a Bloomberg News survey on Sept. 6.

The Bloomberg U.S. Dollar Index, which tracks the greenback against the performance of a basket of 10 major currencies, dropped 0.1 percent to 1,020.17 after falling to 1,017.30 yesterday, the lowest level since Aug. 12.

BNP still favors buying the dollar against other currencies with interest rates near zero such the Swiss franc and the yen, while expecting it to weaken against higher-yielding peers such the Australian and New Zealand dollars, Sneyd said.

The rupee fell for the first time in three days before the Reserve Bank of India meets to review policy on Sept. 20.

“Nobody really wants to take a view ahead of the Fed and RBI decisions,” said Vivek Chaturvedi, associate vice president for foreign exchange and derivatives at Ratnakar Bank Ltd. in Mumbai. “The rupee is in a delicate balance” after the recent gains, he said.

The rupee fell 0.4 percent to 63.125 per dollar, the biggest decline since Sept. 3. The currency has strengthened 4.1 percent this month. 



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