Stock Exchanges: Euro Shows Early Signs of Reversal

Euro Shows Early Signs of Reversal – Week Ahead Critical to Trends

Fundamental Forecast for Euro: Neutral

- Euro breaks key technical short-term trendline
- Candlesticks likewise point to a potential Euro reversal
- German IFO improves for sixth month
- Risk trends remain most important EURUSD driver

The Euro showed early signs of technical reversal through an eventful week of trading, setting fresh yearly peaks versus the US Dollar yet finishing lower through Friday’s close. Strong rallies in the US S&P 500 and other key risk barometers led the single currency to impressive highs against most major counterparts. Yet a late-week breakdown in risk sentiment sparked a flight to safety across forex markets—much to the Euro’s detriment. Near-term Euro forecasts will very much depend on the trajectory of said asset classes, and a busy global economic calendar promises no shortage of volatility through the week ahead.

The Euro remains in fairly well-defined 6-month uptrend, and we would hardly argue that several days of declines signal that it has set a major top. Yet it is undeniable that the EUR/USD lost much of its short-term momentum—having broken below short-term technical support and threatening further declines. Fundamentals will likely play a fairly significant role in the days ahead as the combination of German and US Employment figures will shed a great deal of light on economic conditions in both key countries. The reports may confirm recent waves of economic optimism or cut celebrations short. Reasonably steady improvements in fundamental data have made for lofty market forecasts across most economic releases, and a string of disappointments could easily force noteworthy corrections across major financial markets.

Early-week German Consumer Price Index numbers and Euro Zone Consumer Confidence figures could produce surprises, but most traders look forward to market-moving German Unemployment Change figures due Wednesday. Previous results showed unemployment actually fell for the second consecutive month through August, but the numbers were clouded by government stimulus payments inducing firms to keep workers on their payrolls. Forecasts for September results call for a far less sanguine 20k jump in unemployment. Given that Germany is largely considered the bellwether for the broader Euro Zone economy, any disappointments could led to a noteworthy correction in the Euro exchange rate.

Friday’s US Nonfarm payrolls result could likewise have a pronounced effect on Euro pairs. US and European markets have proven especially sensitive to major surprises in the monthly payrolls number. Consensus forecasts call for the eighth-consecutive improvement in the jobs release, and any disappointments could clearly make a dent in broader forecasts for growth out of the world’s largest economy.

The critical question remains whether we can expect further equity market gains. Much like the Euro, the S&P 500 showed early signs of reversal through late-week trade. A continuation of said tumbles could easily force the Euro to move in kind. – DR

Major stock exchanges

Twenty Major Stock Exchanges In The World: Market Capitalization & Year-to-date Total Turnover at the end of May 2009

Region	Stock Exchange	Market Value (millions USD)	Total Share Turnover (millions USD)
Africa	Johannesburg Securities Exchange	605,040.2	117,424.7
Americas	NASDAQ	2,773,684.3	12,256,704.3
Americas	São Paulo Stock Exchange	920,263.9	191,926.1
Americas	Toronto Stock Exchange	1,347,674.0	490,912.4
Americas	New York Stock Exchange	9,574,066.6	7,986,835.8
Asia-Pacific	Australian Securities Exchange	839,062.7	273,205.9
Asia-Pacific	Bombay Stock Exchange	1,032,589.6	83,906.6
Asia-Pacific	Hong Kong Stock Exchange	1,773,002.2	519,465.7
Asia-Pacific	Korea Exchange	640,357.6	618,607.8
Asia-Pacific	National Stock Exchange of India	968,815.1	242,641.7
Asia-Pacific	Shanghai Stock Exchange	2,069,937.1	1,685,862.2
Asia-Pacific	Shenzhen Stock Exchange	563,103.3	880,744.6
Asia-Pacific	Tokyo Stock Exchange	3,102,492.9	1,561,888.8
Europe	Euronext	2,262,751.6	742,885.6
Europe	Frankfurt Stock Exchange (Deutsche Börse)	1,132,126.2	1,101,064.6
Europe	London Stock Exchange	2,204,320.0	1,483,263.3
Europe	Madrid Stock Exchange (Bolsas y Mercados Españoles)	1,084,606.4	591,217.3
Europe	Milan Stock Exchange (Borsa Italiana)	554,613.9	341,421.1
Europe	Nordic Stock Exchange Group OMX¹	664,465.8	319,398.1
Europe	Swiss Exchange	854,369.0	272,201.5

^Note 1 includes the Copenhagen, Helsinki, Iceland, Stockholm, Tallinn, Riga and Vilnius Stock Exchanges

Sources: World Federation of Exchanges - Statistics/Monthly
Remarks: There are 2 pending major mergers: NASDAQ with OMX; and London Stock Exchange with Milan Stock Exchange