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Euro and Pound Drop to 2-Week Lows Against the US Dollar

Benjamin Spier

THE TAKEAWAY: UK total trade balance rises slightly from a seven month low -> Euro weakens below 1.30 on US Dollar strength -> Pound falls towards a rising trend line

The UK total trade balance rose slightly in March and up from a seven month low set in the previous month. However, the total trade balance was reported at a deficit of -3.13 billion Pounds, slightly worse than an expected -3.1 billion Pounds and better than the revised -3.391 billion Pounds in February. UK exports rose 4.9% in March, while imports increased by 3.2%, according to the Office for National Statistics.

The UK trade balance with countries outside of the European Union rose to -3.47 billion Pounds in March from -4.208 billion in February, and the balance of the trade of goods rose to -9.056 billion Pounds from a revised -9.165 billion.

Also reported today, UK construction output rose by 12.1% in March, which although is the largest monthly rise in construction in over a year, still disappointed expectations for construction output to rise 15.0%. Construction output is 7.4% lower than March 2012.

Exports provided about 32% of UK GDP in 2011, but the trade balance has been reported at a deficit for the past fifteen years. An improvement in the UK trade balance could help improve UK economic strength, which is Pound positive.

The Pound fell below 1.54 against the US Dollar for the first time in two weeks, following the construction and trade balance releases. Support may next be provided by a rising trend line from March, currently sitting near 1.5370. A 2-month high may provide resistance around 1.5606. However, the decline in Pound may have been a reflection of US Dollar strength.

The Euro broke below 1.3000 against the US Dollar for the first time in two weeks today. There was no clear story sending the Euro lower, but the move may have been a reaction to recent US Dollar strength. When looking at the EUR/CHF cross, which is considered more of a pure gage of confidence in the single currency, the pair saw two straight days of wins for the Euro, at the same time the Euro was dropping against the US Dollar. Therefore, this most recent leg of Euro selloff may be a reflection of US Dollar strength more than doubts about the Euro-zone or the single currency.

That rise in US Dollar is also partially responsible for USD/JPY breaking above 100.00 for the first time in four years and AUD/USD falling to a 10-month low.

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GBPUSDDaily: May 10, 2013

Euro_and_Pound_Drop_to_2-Week_Lows_Against_the_US_Dollar_body_gbpusd.png, Euro and Pound Drop to 2-Week Lows Against the US Dollar

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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