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Euro Rises But Pound Trades Heavy Despite Positive Data

Last updated 7/1/2009 5:48 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• German Retail Sales Rise 3rd Month in a Row
• China's Manufcaturing PMI rises for fourth month
• Equities rise on 1st day of new quarter
• OIl rebounds to $70.95/bbl
• Gold at $931/oz last

Overnight Eco

• AUD AIG Manufacturing Index 38.4 vs. 37.5
• JPY Tankan Manufacturing Index -48 vs. -43
• JPY Tankan Non-Manufacturing Index -29 vs. -26 both worse than forecast but better than prior
• AUD Building Approvals sink -12.5% vs. 3.2% eyed
• AUD Retail Sales 1.0% vs. 0.5% expected
• EUR German Retail Sales 0.4% vs. 0.0%
• CHF SVME PMI muted at 41.8 vs. 41.1
• GBP Manufacturing PMI 47 vs. 46.4 forecast
• GBP Index of Services -1.2% vs. 0.2% eyed
• EUR Final Manufacturing PMI 42.6 vs. 42.4

Event Risk on Tap

• USD Challenger Job Cuts
• USD ADP Non-Farm Employment Change expected at -410K
• USD ISM Manufacturing PMI expected at 44.1
• USD Pending Home Sales expected at 1.7%

Price Action

• USD/JPY breaks higher towards 9700 as Chinese PMI fuels risk rally
• AUD/USD lags after building permits sink -12.5%
• GBP/USD drops lower to 1.6400 despite better PMI data
• EUR/USD firms towards 1.4100 on better German Retail Sales

Better economic data out of Europe and UK helped to  lift  the euro and stabilize the pound while yen weakened after worse than expected Tankan survey along with more risk flows helped push USD/JPY to 9700 in late Asia trade.  In Germany retail sales improved for the third month in a row rising 0.4% vs. 0.0% expected and helped to rally the EUR/USD towards the 1.4100 figure at the start of the European open. The data from the region continues to show slow but steady improvement and for the time being remains supportive of the recovery trade, but analysts remain cautious about the second half of the  year given the continued rise in German unemployment.

Meanwhile in Japan  the Tankan printed slightly worse than expected with the large Manufacturers survey coming in at -48 vs. -43 and non manufacturing index at -29 vs. -26. Both readings missed the consensus estimates but were much better than prior results. Although it was below forecast the Tankan survey does point to a recovery albeit at a weaker pace than most analyst projections. The news had little impact on USD/JPY and the pair was driven primarily by post fixing flows and equity market movements. USD/JPY remains the most range bound of all the majors and we expect it to remain moribund for the rest of the week unless NFPs print wildly out of consensus.   

In UK the Manufacturing PMI data printed at 47 vs. 46.4 forecast with the most positive aspect of the survey showing that the output index rose 52.1 form 48.1. However the reaction in cable was muted with the pair remaining under pressure most of the night on cross sale flows. Although output data did increase, the new orders component of the survey remained below 50 suggesting that most f the improvement was due to inventory rebuilding. Nevertheless, today’s UK PMI data indicates that economic activity continues to rebound although the rate of improvement has slowed.  Having gained so much ground so quickly, GBP/USD may be due for a retrace and such modest upticks in economic data as those seen tonight may not be enough to push it much higher.

In US  today, all eyes will be set on the ADP numbers due at 12:15 GMT. The market anticipates a marked decline in unemployment to -388K from -532K the period prior.   If the data confirms expectations it should prove supportive to recovery trade and risk flows and could push the EUR/USD above the 1.4100 handle  as the day progresses. However, if the number remains stubbornly high, the risk trade could reverse in a hurry especially if the ISM Manufacturing report due at 14:00 disappoints as well.

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Comments (2)

Grace Kouvali

July 01, 2009 at 07:22 PM ET

I bought EUR/GBP at 0.8446, stop at 0.8416 on 30/06/09. I am making a loss. Where did I go wrong?

bgareiss

July 01, 2009 at 07:35 PM ET

Grace, I think you may intended that comment for me because you referenced a trade I placed. You may want to check your order again, because if you bought the EUR/GBP at 0.8446 with a stop at 0.8416, you would have hit both profit targets we suggested. Even if you left the long position open, it has continually gone up. If that doesn't solve the problem, could you provide more information at bgareiss@gftforex.com? Brad

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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.