A Forex View From Afar

Monday’s Currency Report: The Euro and The GDP

In a day in which the major currencies posted strong gains against the dollar, the euro barely moved.

The main drag on the euro seems to be the very poor GDP reports seen last week, which pointed out that the economy contracted much more than expected. To make matters worse, the German economy, which is seen as the regional benchmark in Europe, contracted the most on record, at 3.8%.

At the time this article was written, the pound, aussie and the cad each gained 150 pips, while the euro advanced only 50 pips. The dollar’s decline started during the European session and was extended during the U.S. trading hours, as the S&P futures recovered from the declines seen in the early part of the overnight session.

TheLFB-Forex.com Trade Team notes that the dollar index declined only 30 basis points reaching the 82.68 area. Even though the dollar lost ground against every possible currency, except for the Japanese yen, the index’ decline was tempered by the small gains posted by euro. The dollar index has a big exposure to the euro, and tracks every move made by the euro, be it small or big.

However, as long the global economic recovery story seems to continue, the outlook of the majors’ currencies remains to the upside. As investors become increasingly eager to take risk on their balance sheets, they will abandon the safety of the greenback for higher yields. TheLFB-Forex.com Trade Team argues that in the coming quarters, inflation will again be seen in the CPI numbers because of the present expansionary policies and this will further accelerate the dollar’s decline.

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