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Risk and Fix Drive Euro Higher, But Gains Prove Fleeting

Last updated 4/30/2009 5:40 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Chrysler bankruptcy imminent
• German unemployment bit better than forecast
• Nikkei rallies on better IP numbers, Europe follows suit
• Oil $51.89/bbl as risk appetite improves
• Gold at $900/oz.

Overnight Eco

• NZD Rate Decision as expected at 2.5% but statement dovsih
• NZD Building Consents -4.6% from 11.60% last
• GBP GfK Consumer Confidence -27 vs -28 eyed
• JPY Manufacturing PMI improves markedly to 41.4 from 33.8
• JPY Prelim Industrial Production 1.60% from 0.8%
• AUD CB Leading Index 0.2% vs. -0.6% last
• JPY Rate Decision 10bp as called
• EUR German Unemployment Change 58K vs. 65K eyed
• EUR CPI Flash Estimate 1.30% vs. 1.10%

Event Risk on Tap

• CAD GDP expected at -0.1%
• CAD RMPI expected at 1.9%
• CAD IPPI expected at 0.5%
• USD Unemployment Claims expected at 640K
• USD Personal Income expected at -0.2%
• USD Personal Spending expected at -0.1%
• USD Chicago PMI expected at 34.3

Price Action

• USD/JPY risk appetite fuels move to 97.80
• AUD/USD better data and positive risk flows drive it 2% higher before copming back to 7320
• GBP/USD rallies to 1.4950 on better CC data but retraces to 1.4850 by mid morning Europe
• EUR/USD huge fix flows pull it to 1.3385 before profit taking kicks in to drive it back to 1.3300

The dollar was broadly weaker in Asian and European trade today as healthy risk appetite and end of the month fixing demand fueled a rally in high beta currencies  with Aussie rising nearly 2% from its session lows while EUR/USD climbed to within 15 points of 1.3400 and cable rose above the 1.4900 figure.  

Much better than expected Industrial Production data from Japan which rose 1.60% from 0.8% projected kicked off the rally as Nikkei gained  nearly 4% on improved  investor sentiment. There was a quick blip to the downside on the news flash of Chrysler’s imminent bankruptcy but risk currencies quickly regained their footing as European equities followed Asia’s lead. For global recovery bulls, the eco data calendar proved very supportive today as news of better consumer sentiment from UK, stronger Industrial Production data from Japan and better than expected unemployment data from Germany provided a very friendly environment for risk taking.

However, as the night progressed the EUR/USD gave up much of its gains as profit taking kicked in near the 1.3400 level.  Despite the fact that German unemployment was better than expected the contraction in labor markets continued for the fifth consecutive month as unemployment rate increased to 8.3% from 8.2% forecast. As we noted earlier, “With EUR/USD having run up nearly 400 points over the past four days, the impact of the unemployment was minimal, as the pair stalled ahead of the 1.3400 barrier for now. The rise in the EUR/USD over the past 24 hours has been helped immeasurably by much better environment for risk taking and very strong end of the month fixing demand. With the fix flows nearing completion, the pair will need to see risk appetite flows continue in the North American session in order to take another run at the 1.3400 figure.”

Fed Comments Boost The Dollar

In North America today, the market will get a glimpse at the US Personal Income and Personal spending data, as well as the Chicago PMI numbers which could provide a strong clue to tomorrow’s national ISM Manufacturing report. The directional tone in the US session will depend on whether stocks could build  upon their gains in the post FOMC rally. US equity markets tend to have a history of reversing their moves the day after the FOMC announcement and if that were to be the case today, EUR/USD could be pushed below 1.3300 on further profit taking as the day continues.   .  

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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.