Risk Returns As Aussie and Pound Lead The Way

Last updated 9/30/2009 5:14 AM ET (GMT -5) 0 Comments - Add your comment

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Australian Retail Sales blow through estimates set stage for rate hike
• German Unemployment improves markedly
• Asian equities mixed with Nikkei up but Europe higher
• Oil at $67/bbl on recovery flows
• Gold inches back towrads $1000/oz.

Overnight Eco

• GBP GfK Consumer Confidence -16 vs. -24
• JPY Manufacturing PMI 54.5 vs. 53.6 last
• JPY Prelim Industrial Production 1.8% vs. 1.9%
• AUD CB Leading Index 0.7% vs. 0.6%
• Building Approvals -0.1% vs. 2.7%
• Retail Sales 0.9% vs. 0.6% eyed
• Private Sector Credit 0.1% vs. 0.2%
• NZD NBNZ Business Confidence 49.1 vs. 34.2 last
• EUR German Unemployment Change -12k vs. 19K
• EUR CPI Flash Estimate -0.3% vs. -0.2%

Event Risk on Tap

• USD ADP Non-Farm Employment Change expected at -189K
• CAD GDP expected at 0.4%
• CAD RMPI expected at 3.1%
• CAD IPPI expected at 0.6%
• USD Final GDP expected at -1.2%
• USD Chicago PMI expected at 52.1

Price Action

• USD/JPY back below 9000
• AUD/USD hits 13 month high breaks 8800
• GBP/USD runs to within pips of 1.6100 on better data and EUR/GBP flows
• EUR/USD rises to 1.4600 as German data proves supportive

Risk flows returned to the currency market led by much better expected Australian Retail Sales numbers which pushed Aussie to a 13 month high and sparked speculation of an RBA rate hike before the year end. Australian Retail Sales printed at 0.9% vs. 0.6% eyed as consumers demand down Under surged in the wake of improving  growth in Australian economy which has benefited greatly from China’s persistent demand for commodities.     

As we noted earlier, “With Australian yields already the highest amongst the industrialized nations (currently at 3%), a move towards tightening by the RBA will attract even more capital into the currency as carry traders try to profit from rate differential especially against the US dollar and the yen. With little resistance to stand in its way, the unit could target the .9000 figure over the next several sessions if risk flows prove supportive.”

Meanwhile, cable also caught a bid running to within a few pips of 1.6100 handle before selling off slightly.  Today’ s UK GFK Consumer confidence numbers printed much better than forecast at -16 versus -24 eyed suggesting that consumer demand may pick up into Q3 of 2009. Coming  on the back of yesterday’s much  stronger than expected CBI Distributive Trades report, the data indicates that economic activity in UK may be starting to rebound as global capital markets stabilize.  The pound also saw a lift from the unwind of EUR/GBP end of the month flows on chatter that a major EU payment to UK farmers was due later today.

In Germany the unemployment numbers printed much better declining by -12K versus forecasts of a rise by 20K. Part of the improvement was due to seasonal adjustments as the summer came to an end, nevertheless the news was clearly positive for EZ growth going forward.  Unlike prior recessions, the EZ’s largest economy has been able to contain losses in the labor market  through various job mitigation schemes and now with global demand picking up, it appears that many workers will remain on the payrolls even as government subsidies fade. That dynamic should prove supportive t the euro as improvement in German labor conditions will allow the ECB to consider exit strategies from its accommodative monetary policy sooner rather than later.

In North America today,  the focus will turn to the ADP report with market looking at an improvement of -200K versus -298K the month prior as well as the Chicago PMI data which could provide a read on tomorrow Manufacturing ISM data. Yesterday’s sharp  decline in Consumer confidence data set off risk aversion flows and if the ADP report today surprises to the downside, it may trigger the same reaction reversing some of the price action from overnight. However, if US equity flows prove supportive, the recovery trade is likely to extend for the rest of the day with Aussie and cable leading the way.

FX Upcoming

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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.