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Return of Risk as Euro and Cable Near Yearly Highs

Last updated 5/19/2009 6:13 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• GS, AMEX JPM will be first to repay TARP loans
• ZEW hits a 2 year high as hard data backs up sentiment
• Equities rally in Asia and Europe
• Oil takes out $60bbl
• Gold at $923/oz last

Overnight Eco

• AUD Monetary Policy Meeting Minutes
• JPY Revised Industrial Production 1.6% as expected
• GBP CPI cooler ar 0.2% vs. 0.4%
• GBP RPI 0.1% vs. 0.3%
• EUR German ZEW Economic Sentiment 31.1 vs. 20
• EUR ZEW Economic Sentiment 28.5

Event Risk on Tap

• USD Building Permits expected at 0.53M
• USD Housing Starts expected at 0.52M

Price Action

• USD/JPY runs to 9670 as risk rally continues
• AUD/USD takes out 7750 on massive run of risk
• GBP/USD comes within pips of 1.5500 but CPI data shows price pressures easing
• EUR/USD takes out 1.3650 in aftermath of ZEW but capped for now

Note: next report Friday May 22nd

Risk appetite ran rampant in the FX market today pushing high beta currencies near their yearly highs as investors continued to bet on the recovery theme heartened by better economic data across the globe. Investor optimism was evident in the latest ZEW survey which rose to a two year high as analysts responded to significant improvements over the past month in a variety of economic reports.

The ZEW survey printed at 31.1 vs. 20 forecast  marking the seventh consecutive rise in the headline reading. However, the current conditions survey was a bit weaker at -92.8 vs. -90 indicating that for time being the business environment remains difficult.  The true measure of the recovery bounce will come later in the week when the market gets a look at the flash PMI readings for May. If the production sector continues to show improvement and perhaps even inches its way towards the 50 boom/bust level, euro bulls will have much more substantive support for their argument that the region’s economy has truly turned the corner.

For the time being however, sentiment was enough to keep the rally going as equities provided a friendly background to further gains for the euro, cable and the Aussie. Cable came within a few pips of hitting the  1.5500 target before profit taking kicked in.  Overnight UK inflation data was cold with CPI printing at 0.2% vs. 0.4% eyed suggesting that price pressure are easing materially. However, in an environment of near ZIRP conditions inflation data has almost no impact on the FX market as traders expect rates to remain dormant for at  least another 12 months across the G10 universe.

Risk or no risk remains  the only trade in town and to that end today’s US Housing starts could help further the rally if the number increases from the month prior suggesting a pick  up in activity in the housing sector   Should  US equities put in another positive session,  the EUR/USD could  run to 1.3700 while cable will try to retest the 1.5500 level as demand for risk shows no signs of  easing.   

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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.