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Euro Crushed By Trichet Comments, But 1.30 Holds For Now

Last updated 4/17/2009 6:01 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Euro hits monthly lows as Trichet hints interest rates may drop further
• Fed considering five-year CMBS loans through TALF
• Equities frimer accross the board
• Oil below $50 again
• Gold off to $874/oz.

Overnight Eco

• NZD CPI 0.3%
• NZD PPI 0.5%
• JPY Tertiary Industry Activity -0.8%
• AUD Import Prices -2.8%
• JPY Household Confidence 28.9
• CHF Retail Sales sharply lower to -3.8% vs. -0.2% called
• EUR Trade Balance -4B better than -4.7B eyed

Event Risk on Tap

• CAD CPI expected at 0.3%
• USD Prelim UoM Consumer Sentiment expected at 58.3

Price Action

• USD/JPY trades 9930-9975 raange as rsik appetite remains
• AUD/USD holds 7200 handle on decent risk flow, but euro selling caps any rallies
• GBP/USD breaks 1.4800 handle as euro sales weigh
• Trades to .13050 in aftermath of dovish Trichet comments

The euro was pummeled in Asian and early European trade in the wake of comments by Jean Claude Trichet  that indicated ECB may lower rates below the 1% limit suggested earlier in the week. In a speech in Tokyo President Trichet stated that, “Any ambiguity in our medium-term policy direction would delay the return of sustainable prosperity, because that would undermine confidence, which is the most precious ingredient in the present circumstances.”  

The seeming disagreement with Mr. Weber over the course of European monetary policy created a loss of confidence in the currency market and the unit which has already suffered for most of this week dropped to monthly low of 1.3055. With 1.3000 clearly in their sights euro bears will make every effort to run stops through that level and the latest rumor of a threat by Moody’s to downgrade Ireland will only help them achieve their cause.

Despite the relentless downward price action, economic  news from the region actually offered a mild upside surprise with Trade deficit shrinking to -$4 Billion from -$4.7  Billion forecast. We noted earlier that “Today’s trade balance numbers …could be the first sign that the worst of the contraction is over.  In order for the European economy to recover, it must once again run positive Trade balances and a lower euro along with a revival in global demand could turn those numbers around as the year progresses.”

Turning to North America, the event calendar contains only the U of Michigan survey, which given the  improved weekly jobless figures yesterday could print an upward surprise   sustaining the rally in equities as we move into the week-end. Before that however, equities will have to contend with earnings from Citi and GE. The recovery theme has taken hold of all capital markets and has proven to be far more durable than any bear thought possible. If risk appetite continues to dominate flow USD/JPY at 100 could be the  target at the end of the day.

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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.