The Forex Daily Digest – February 8, 2010

Concern over a potential economic default in southern Europe relaxed a little today, which allowed the EUR to gain some lost ground against the USD. Economists have warned that monetary concerns will likely continue to affect the EUR but there are expectations that a European Union rescue effort is building. Economists believe that the EUR’s slight gain today is simply a rally following a lack of any fresh weekend news on the credit front. Uncertainty over the financial situation of Greece, Spain and Portugal could lead to future weakness for the EUR.

The finance ministers and central bank governors from the seven leading industrialized nations finished a two day meeting over the weekend, promising continued financial support to the recovery and future progress of the global economy. The G7 delegates from Canada, France, Germany, Italy, Japan, the United Kingdom and the United States were also joined by Dominique Strauss- Khan, the Managing Director of the International Monetary Fund Managing Director, World Bank President Robert Zoellick, and the European Central Bank President, Jean-Claude Trichet.

The AUD and the NZD fell over concern about growing budget deficits in Europe which forced investors to sell higher-yielding assets. The NZD also weakened after central bank governor Alan Bollard said the nation’s economy is "still fragile." Both currencies declined as G7 finance ministers in Iqaluit, Canada, pledged to press ahead with economic stimulus measures amid concern about sovereign risk crises in nations including Greece, Portugal and Spain.

China’s Vice Commerce Minister Zhong Shan said his government faces pressure to allow the yuan to appreciate and might give the currency a "small range" to move depending on the economic situation. Financial analysts are saying that it is unlikely that China will allow its currency to advance versus the USD over the next few months as the international economy has made its leaders "more concerned" over the projections of Chinese exports.

The global economic recovery appears to be slowing. Trade figures from Germany, China and the United States are expected to show large gains from a year ago, when the international recession was at its peak. But this may also reflect a downshift in the rate of global economic recovery. In China, for example, economists expect a sharp 23 percent jump in January's exports, but a decline when compared with December. The disparity is even more dramatic for Chinese imports for the month of January, which are expected to increase by 86 percent from a year ago but fall from December.

On the U.S. economic calendar tomorrow watch for the December Wholesale Inventories report. And scheduled earnings will include Walt Disney Co., Coca-Cola, Gaylord Entertainment, Allied Health, Pulte Homes, Lions Gate Entertainment, Netgear, and Learning Tree.

Happy trading,

James Dicks