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Euro Hit From All Sides

Last updated 4/17/2009 3:58 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Massive redemption flows of about $45 Billion in European bonds and dovish comments from ECB President Jean Claude Trichet sent EUR/USD& nbsp; to a monthly low of 1.3064 in Asian trade today as the currency suffered losses for the fourth day in a row.

Mr. Trichet stated the central bank must do everything possible to boost confidence, signaling that he may cut interest rates further.  Speaking in Tokyo he noted 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 currency market instantly interpreted his comments as rebuke to the idea put forth by ECB council member Axel Webber earlier this week,  that ECB rates should not drop below 1%.  The seeming disagreement amongst European monetary authorities along with relentlessly dour economic data emanating  from the region has greatly undermined confidence in the European currency this week. The unit has underperformed vs. the rest of the G10 block and a test of the 1.3000 now seems  like a preordained conclusion

Yet the same spark of optimism that has fueled the rally in global equities may slowly find its way to the Eurozone. If global recovery  actually takes hold,  the battered Eurozone export sector could finally see demand stabilize. Today’s Trade balance numbers which are expected to register a  smaller deficit than the month prior 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.    

Nevertheless,  the Eurozone economy clearly faces a host of challenges from its massive loan liabilities to Eastern Europe to the ballooning budget deficits of Southern European members. The divide in the ECB governing council clearly reflects some of the stresses in the system. Therefore the EUR/USD& nbsp; is unlikely to see any sustained bid for the foreseeable future, unless some event in US triggers a run on the dollar.  For the time being range trading between 1.30-1.35 is the best case scenario for euro bulls.

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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.