Has EUR/USD Turned the Corner?

Last updated 4/24/2009 5:48 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• IFO better at 83.7
• Moody's - UK credit rating under thrat due to deteriorating finances
• Equitiies - Nikkei drops -1.5% Europe up slightly
• OIl at $49/bbl
• Gold breaks above $900 at $913/oz

Overnight Eco

• JPY All Industries Activity -2.0% vs, -2.0% eyed
• JPY CSPI -2.1% vs. -2.6%
• EUR French Consumer Spending improves 1.1% vs. 0.2% consensus
• EUR German Ifo Business Climate 83.7
• GBP Prelim GDP worse -1.90%
• GBP Retail Sales rebound nicely to 1.5%
• GBP Index of Services 1.20%

Event Risk on Tap

• USD Durable Goods Orders expected at -1.4%
• USD New Home Sales expected at 340K

Price Action

• USD/JPY drops through 9700 on weak Nikkei and stop hunting
• AUD/USD rises to 7190 in sympathy with euro
• GBP/USD at 1.4600 on mixed data
• EUR/USD blows out 1.3200 as IFO beats

The euro rally continued in early European trade today after the IFO survey of business confidence handily beat expectations printing at 83.7 vs. consensus calls of 82.1. The IFO release was the third positive economic surprise from the EZ this week, following on the heels of better ZEW and PMI data numbers. As a result the EUR/USD has rallied more than 300 points off the week’s lows as short covering continue unabated.

We noted earlier that, “sentiment towards the EUR/USD has been extremely negative with the market actually expecting further economic contraction in the 16 member union, This week’ s data strongly refuted this bearish thesis, suggesting that much like the rest of the world the EZ economy may be in the process of making a slow turn upward.”

Nevertheless, today’s IFO readings remain near multi-year lows and at best suggest only that the decline in economic activity has been arrested for now. Growth is still elusive for the region and therefore any further rally will likely find resistance at the 1.3500 level unless European data continues to show improvement into the summer. Given the dour labor conditions in the region we are skeptical about any sustainable rise for now.

Meanwhile in UK the data was decidedly mixed with Q1 GDP contracting a much sharper -1.90% vs. -1.5% projected indicating that the recession in the British Isles was more severe than analysts expected. Only the flip side the retail sales numbers jumped to 1.5% from 0.4% the month prior suggesting that UK consumers are a bit more optimistic. Overall however, cable remains under a black could as traders worry about the fiscal deficit of more than 12% of UK GDP and the prospect of higher taxes driving capital away from London. The pair was dormant at 1.4600most of the night and remains vulnerable to a run to 1.4000 on any revival of risk aversion.

Finally in North America the eco calendar brings the US Durable Goods and New Home Sales data. The US economic news this week has not been nearly as buoyant as last week’s and the dollar appears to have hit a wall as investor enthusiasm starts to wane. Yesterday’s weak existing home sales dashed the hopes of bulls on any quick rebound in the housing sector and if today’s Durables and New Home Sales come in weak as well the US economic rebound story will lose some of its luster. The greenback has been weakening against the yen all night long and if the US data proves dour it may target 9600 before the day’s end.

Neutral on the Yen

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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.