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EUR/USD Blasts Past 1.3200 as Fears Fade

Last updated 4/29/2009 5:37 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Fed Finds 6 out 19 Banks Need More Capital
• WHO reports only 7 swine flu deaths not 152 - helps risk in Asia
• Japan closed rest of Asia and Europe equities rally
• OIl back above $50/bbl
• Gold rallis towars $900/oz at $895/oz last

Overnight Eco

• NZD Trade Balance 324M better than 250M forecast
• AUD HIA New Home Sales
• NZD NBNZ Business Confidence -14.5 vs. 39.3
• EUR M3 Money Supply slows to 7.10% from 8.70%
• EUR Consumer Confidence 67.2 vs. 65.2
• CHF KOF Economic Barometer 1.86 vs 1.89

Event Risk on Tap

• USD Advance GDP expected at -4.9%
• USD Interest Rate Decision expected at 0.25bp

Price Action

• USD/JPY runs to 97.00 on better risk appetite
• AUD/USD rebounds strongly to 7150
• GBP/USD trades better to 1.4700
• EUR/USD Asian flows take it to 1.3200 as swine flu fears recede

Much better bid tone in the Asian session towards risk sparked a rally in euro and other high beta currencies as fears over the swine flu pandemic began to fade. A member of the World Health Organization dismissed claims that more than 150 people have died from swine flu, saying it has officially recorded only seven deaths around the world. Vivienne Allan, from WHO's patient safety program, said the body had confirmed that worldwide there had been just seven deaths - all in Mexico - and 79 confirmed cases of the disease. The news eased concerns in the currency markets that the swine flu pandemic could  negatively impact  consumer behavior in G10 economies an threaten any potential recovery in H2 of 2009.

As a result, the EUR/USD was broadly bid through  the Asian session, and sliced through stops at 1.3200 by early European trade. On the economic front the EZ Retail PMI numbers proved  supportive to euro bulls printing at 48.9 versus 44.4 the period prior. The sharp jump was yet another piece of evidence that economic conditions in the region are beginning to stabilize, at least for the time being.  The Retail PMI now stands less than 2 points away from the 50 boom/bust level – an impressive climb back given the severity of contraction in the 16 member union.

Other economic data from the EZ also provided a positive background with  Economic  Confidence rising to 67.2 from 65.6 the month prior while the Business Climate indicator  improved to -3.33 from -3.53.  The one key event that could sabotage the euro rally will be tomorrow’s report on German unemployment. The market is looking for a 65K print, but  if the data surprises to the downside it could revive concerns about the danger of double dip recession in the EZ as the year progresses.

 Financial Crisis Still Has Long Way to Go

In North America session today, the markets will get a glimpse of the Q1 US GDP data which is forecast at -5.00% versus  -6.30%  in Q4 of last year. If the number is better than projected - and given the improvement in trade figures it has a good chance of beating estimates - the risk appetite rally may continue for the rest of the day. In addition to the GDP report, the FOMC will make its announcement at 18:15 GMT and while few market participants expect any change in policy, the tone of the communique will be key. If the Fed reaffirms the idea that US economy is rebounding off its lows, the boost of confidence may lift equities higher and rally EUR/USD past 1.3300 before the day’s end.

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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.