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Euro Dives as IP Contracts Once Again

Last updated 4/16/2009 6:13 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Chinese GDP expands 6.1% slowest pace in decade
• US Treasury - China not manipulating currency
• EZ CPI bit hotter at 1.5%
• OIl back below $50/bbl at $49.35 last
• Gold stationary at $893/oz.

Overnight Eco

• NZD Business NZ Manufacturing Index 40.7 vs. 38.9
• GBP BRC Retail Sales Monitor -1.2% vs. 1.8%
• CHF PPI 0.5% vs. -0.2%
• EUR CPI 1.5%
• EUR Industrial Production -2.3% vs. -2.5%

Event Risk on Tap

• CAD Manufacturing Sales expected at 3.4%
• USD Building Permits expected at 0.55M
• USD Unemployment Claims expected at 665K
• USD Housing Starts expected at 0.53M
• USD Philly Fed Manufacturing Index expected at -31.8

Price Action

• USD/JPY moves below 99.00 as equities weaken in Europe
• AUD/USD rallies slightly to 7200 on better risk in Asia bur quiet in Europe
• GBP/USD 1.5000 brings profit takers as unit slips to 1.4900 handle
• EUR/USD pressure remains as euro drops to 1.3100 handle

After a brief pop in Asia EUR/USD selling continued in early European trade with the unit pressured by the release of yet another disappointing Industrial Production report which showed a drop of -2.3% versus -2.5% forecast. Although the data beat estimates slightly it nevertheless confirms the notion that the manufacturing sector is contracting sharply and will likely drag the EZ GDP lower as the year progresses.  

The euro has been a terrible underperformer this week, battered by the growing perception that EZ policymakers are out of touch with the conditions on the ground and could exacerbate the recession by keeping rates too high. Some analysts are now forecasting a contraction of more than -4% for the full 2009 calendar year with many expecting job losses to accelerate as teh summer approaches. The unit is now within range of the psychologically important 1.3000 handle and will no doubt be targeted if risk aversion flows prove supportive to the bears.

Meanwhile the pound came in for some profit taking as the 1.5000 level proved too  difficult to hold for the time being, but unit continues to react well to the improving tone in global capital markets and if the rally in equities continues for the rest of the week, it could revisit that area for another test of resistance.

Turning to North America, the trade in US will focus on the Philly Fed numbers and the weekly jobless claims. The markets will want to see if the uptick in Empire yesterday can be confirmed by better results in the Philly data, which would provide yet more evidence that output in the US manufacturing sector is beginning to stabilize. 

The weekly jobless numbers could prove important as well especially if they do not breach the key 700K barrier indicating that the worst of the job cutting may be behind us. Finally the JP Morgan earnings at the start of the session and Google numbers at the end of it should serve as a bracket to risk appetite for the day. Although the equity rally appears to be a bit long in the tooth, the bulls refuse to go quietly and if risk appetite once again pushes equities higher, the high beta currencies could recover some of their European session losses.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.