Euro Lower as Risk Returns on Swine Flu Scare

Last updated 4/27/2009 5:02 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Swine flu fears dominate trade in cuurency markets
• IMF Chief - Darling's UKl budget too optimistic
• Equities mixed with Nikkei flat but Europe lower on risk aversion
• OIl back below $50/bbl at $49.33 last
• Gold at $916/oz. after 1st rally in 5 weeks

Overnight Eco

• EUR GfK German Consumer Climate bit better at 2.5% vs. 2.3% eyed
• EUR German Import Prices -7.1%vs.-6.5%
• GBP BBA Mortgage Approvals 26.1K vs. 29.2K eyed

Event Risk on Tap

Price Action

• USD/JPY runs to 96.50 on risk aversion but weighs heavier on high beta crosses
• AUD/USD trades toward 7100 as fears of swine flu speard to Asia weigh
• GBP/USD to 1.4550 as mortgage approvals drop
• EUR/USD flirts with 1.3100 but bounces a bit in early European trade

The EUR/USD was lower by more than 100 points at the start of the week’s trade today, as fear of a spreading swine flu epidemic gripped global capital markets. Centered in Mexico, the swine flu outbreak has managed to kill more than 80 people, but the latest cases in US and Canada have not resulted in any further fatalities so far. Human to human infection of swine flu is spread through touch and sneezing and is treatable with antibiotics. Investors in Asia, still haunted by memories of SARS outbreak in 2003 were quick to react, selling high beta currencies while seeking refuge in the dollar and the yen.

As we noted earlier,” The news of the disease couldn’t have come at worst time for global economy, creating fear and uncertainty in the capital markets just as tentative signs of stabilization were beginning to appear. If the outbreak remains contained to North America, the concerns are likely to die down as the week progresses. However, if swine flu spreads to Asia and Europe economic activity may be seriously impacted and today’s wave of risk aversion would only serve as the beginning of a new rally for the dollar and the yen.“

Swine Flu - Another Blow to Global Trade

Meanwhile, the euro may face economic as well as geo-political risks this week as the market turns its attention unemployment data from Germany. Last week the unit enjoyed a short covering rally, as the economic data from the region surprised to the upside suggesting that along with the rest of the word the EZ may be in the midst of a bottoming out process. This week the economic docket is considerably less active, but the German unemployment data due Thursday could be the key event risk of the week.

Despite some signs of optimism in EZ, the prospect of steeper job losses could once again pressure EUR/USD as the week progresses. Over the weekend France's Secretary of State for Employment warned that April French unemployment is expected to rise as much as in March (80K) and he forecasts that unemployment will remain elevated until the end of the year. If German unemployment which is forecast to increase by 65K surprises to the downside, much of the positive sentiment generated last week could quickly dissipate. We have argued that 1.3500 remains significant resistance for the EUR/USD and unless the economic data this week produces better than expected results we doubt the pair will be able to break that barrier.

In North America today the economic is calendar is barren and markets will likely trade off any further developments on the swine flu story as well as any progress on the automakers rescue plans. Any further bouts of risk aversion could drive the EUR/USD through the 1.3100 handle and open the possibility of a test of 1.3000 later in the week.

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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.