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Euro, Pound Fall as Growth Stalls

Last updated 7/3/2009 5:50 AM ET (GMT -5) 3 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• EZ Services PMI steill below May's readng at 44.7
• UK Services 51.6 lower than month prior
• Asia down, European stocks up slightly
• OIl at $66/bbl
• Gold at $433/oz

Overnight Eco

• AUD AIG Services Index much better 50.2 vs, 39.9
• CHF CPI 0.2% vs. 0.1%
• EUR Final Services PMI 44.7 vs, 44.8 the month prior
• GBP Services PMI 51.6 vs. 51.8 forecast
• GBP Housing Equity Withdrawal -8.1B vs. -8.9B
• EUR Retail Sales worse at -0.4% vs. -0.1%

Event Risk on Tap

Price Action

• USD/JPY 9550-9600 range
• AUD/USD bounces back to 80 on strong services PMI
• GBP/USD mired at 16350
• EUR/USD recivers 1.4000 but data shows slowdown

The dollar continued to gain ground in Asian and European trade today as data from EZ and UK indicated a loss of momentum in economic activity putting doubt into the recovery thesis for the second half of the year. The EUR/USD struggled to hold  the 1.4000 figure while cable dropped to 1.6350 as risk appetite waned considerably in the wake  of weaker than expected US NFP data and mediocre economic results from both Europe and UK.

In Europe the final services PMI data printed at 44.7 which was slightly better than the 44.5 estimates but worse than the 44.8 reading in May. Furthermore, EZ Retail Sales contracted by -0.4% versus -0.1% eyed falling for the third month out the past four. In UK meanwhile the services PMI printed at 51.6 against 51.8 forecast also worse than the May’s numbers.

The stall in economic activity confirms our suspicion that the recovery trade is losing momentum as final demand remains lackluster. As we noted earlier the overall picture, “indicates stability, but little further improvement in both EZ and UK and does not augur well for risk currencies going forward.” The Aussie remains the one exception amongst the majors as Australia continues to benefit from Chinese demand. Today’s AIG services PMI number rose to 50.2 from 39.9 the period prior breaking above the 50 boom/bust barrier for the first time in 15 months helping AUD/USD to recover back to the 8000 level.

With US capital markets closed for  July 4th holiday, the North American session is likely to be very quiet as flows slow to a trickle. The economic data this week from across the globe has put a big dent into the recovery trade and market participants  are likely to be more risk averse when they return to their desks next week.  Next week will also bring the start of the earnings season which will be critical to supporting risk appetite going forward. If US multi-nationals cannot beat estimates in Q2 given the rebound in all the economic indices and the lower dollar exchange rate, then the recent rally will begin to look like a simple exercise in inventory rebuilding rather than a true revival fo demand

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Comments (3)

endy65

July 03, 2009 at 10:43 AM ET

I can be fool, but plz tell me the different between "Non-Farm Employment Change" and "Unemployment Rate", because in my speculation, I found that sometimes the change between them is diverse, for example: In June/05/09 the "Non-Farm Employment Change" is -345K (in compared with -504K on May) , it means that the number of people have job increased, however the "Unemployment Rate" is 9.4%, it means that the rate of people who lost their job increased too (in compared with 8.9% on May). In my opinion, I think that the fluctuation between "Non-Farm Employment Change" and "Unemployment Rate" must be in the same way, so that I have no idea of this diversification.

bschlossberg

July 06, 2009 at 03:13 AM ET

The reason why you see the difference in rate vs. the NFP number is that those people who stop looking for a job no longer count in the denominator and therefore you can large losses in NFP but moderate gains in the unemployment rate.

endy65

July 06, 2009 at 08:41 AM ET

thank you so much

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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.