Forex traders face several fundamental risk events scheduled for release Thursday, 5 March 2009, including:

•    The second reading on the Eurozone’s 4Q2008 gross domestic product, due to be released 10:00 AM (all times GMT). The initial reading printed −1.5% q/q, −1.2% y/y, and no adjustments are anticipated at this time.

•    The Bank of England interest rate decision, scheduled for release at noon. The current rate is 1.0%, and the forex trading market is widely anticipating a cut of 50bps to 0.50%, as well as an intensification of discussions regarding quantitative easing.

•    The European Central Bank rate decision, scheduled for release 12:45 PM. The current rate is 2.0%, and another 50bps rate cut is expected here, lowering the rate to 1.5%. Although quantitative easing is more complex within the monetary union, it is not impossible, and all financial markets, including credit, fixed-income, and equities, would appreciate greater transparency regarding the ECB governing council’s plans there.

Each of these three event risks, taken individually, has the potential to move the forex trading market. Taken together within a three-hour period and with risk aversion maintaining its stranglehold on financial markets, that potential is amplified. Any deviation from the expected script could see the offending currency punished, particularly against the safe-haven Japanese yen, Swiss franc, and U.S. dollar.

In this instance, particularly vulnerable is the Euro. While USD maintains its safe-haven status and while the pound sterling has much bad news already priced into its current standing, EUR continues to carry downside risk and the breaking of support at 1.2560 on Tuesday, 3 March, opens the door to possible further depreciation, with the next level of support at 1.2400.

While these three event risks have been widely publicised and are not unexpected by the forex trading market, a more subtle one is likely to be released on Wednesday, carrying repercussions that may affect currency movements via risk aversion through the remainder of the week. This unpublicised event risk is the U.S. presidential administration’s expected announcement of a plan to rescue their housing market.

Since 4 November 2008, when the new administration was elected, U.S. stock indices have fallen 30%, with 18% of that collapse taking place within the past three weeks. During that stretch of time, multiple plans have been announced, intended to bolster confidence, rescue the banking system, and stimulate the economy; however, equity investors have maintained four months of intense bearish pressure, amounting to a vote of no confidence in their new president.

This dynamic intensified this week, with the Dow Jones dropping and closing beneath 7,000, wiping out twelve years of growth in the process. Should U.S. and global equity investors dislike the real estate rescue plan as much as the others, watch for risk aversion to surge higher, leading to continued safe-haven flows into USD, and potentially JPY and CHF. This has the potential to weigh on commodity currencies, including the Australian, Canadian, and New Zealand dollars, as well as EUR and GBP.

If such a scenario plays out, and if the following ECB or BoE rate decisions underwhelm, or if the Eurozone GDP is revised lower, further downside potential for EUR/USD remains a possibility.