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Will Euro Hit 1.5000?

Last updated 10/19/2009 5:44 AM ET (GMT -5) 13 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• BOE's Posen - Extension of QE appropriate
• Japan's Tertiary Industry Activity rises for 3rd straight month
• Nikkei bit lower, but Europe up on the open
• OIl targets $80/bbl - $78.50/bbl last
• Gold stady at $1054/oz.

Overnight Eco

• GBP Rightmove HPI 2.8% vs .0.6%
• JPY Monetary Policy Meeting Minutes
• JPY Tertiary Industry Activity 0.3% vs. 0.1% eyed

Event Risk on Tap

• CAD Foreign Securities Purchases expected at 1.23B
• USD NAHB Housing Market Index expected at 20

Price Action

• USD/JPY drops belows 90.50 as dollar fades on European open
• AUD/USD back above 92.00 on risk flows
• GBP/USD weighed by Rosen comments as it dips below 1.6300
• EUR/USD back above 1.4940 as recovery trade back on

After a bit of profit taking in the Asia session the recovery trade was back on at the start of European open with EUR/USD once again  breaking above the 1.4900 barrier while Aussie climbed above 92.00. The pound was the laggard of the night dropping below the1.6300 barrier after the MPC member Adam Posen stating that he may back an extension of the 175 Billion QE program by the central bank.

Speaking to UK Sunday Times Mr. Posen noted that  that the central bank would base its decision on whether to extend QE, on inflation and the extent of economic recovery."It goes back to how much you think there is real overshooting and inflation risk, and how much you think the financial system has recovered," he stated. The comments weighed on the pound despite the fact that housing data from Rightmove showed a marked increase  to 2.8% from 0.6% expected. In fact housing prices in London have now exceeded their pre-Lehman highs suggesting that property market in UK is recovering strongly. Although QE concerns continue to be a drag on cable, the unit should resume its rebound from deeply oversold conditions and could  strengthen especially against the euro if this week’s UK Retail Sales provides an upside surprise.

Meanwhile in Japan the latest minutes from the BOJ meeting suggested that the central bank is considering an exit strategy from some of corporate funding programs intended to ease the crisis at the start of this year. "The amount of Commercial Paper and corporate bonds purchased by the Bank has declined significantly, and interest rates in fund-supplying operations ... have been stable at low levels," the minutes quoted a few members as saying.   We noted earlier that if USD/JPY remains above the 90.00 mark the BOJ is much more likely to adopt a more hawkish posture  stating that “Such a move in turn would likely expedite the BOJ’s own removal of QE measures as exchange rate pressures on the Japanese export sector would ease considerably.”

With this weekend’s article in Barron’s calling on the Fed to raise rates to 2%, all eyes will be on Chairman Bernanke today as he is slated to speak at a conference in San Francisco. It is unlikely that he will make any direct policy statements today and that could disappoint dollar bulls as it would perpetuate the perception that the Fed is practicing the strategy of benign neglect towards the greenback. With EUR/USD within striking distance of the 1.5000 handle any boost in equity flows could propel a move to run stops at that key figure. However even if the pair breaks above that level we doubt that it will have much further room to run as it is sure to provoke  some  warning rhetoric from EZ fiscal authorities.

However, our favorite way to play the dollar rebound theme is through the USD/JPY pair especially if the US jobless data continues to improve this week. We do not  thinks that the Fed will raise rates anytime in the foreseeable future but may begin tighten policy by curtailing some of its QE purchases as markets regain equilibrium. Such a move would steepen the yield curve and make the dollar more attractive versus the yen on interest rate differential basis possibly pushing the pair to 95.00  as the dollar counter trend rally takes hold.     

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Comments (13)

m.hollingshaw

October 20, 2009 at 12:10 AM ET

Though I'm not sure to ask, would a short position on the EUR/USD at 1.5010 and a stop at 1.565 with profit expecting at 1.496 be...advisable? Reasonable? Whatever the descriptor, thank you for your time.

bschlossberg

October 20, 2009 at 01:59 AM ET

That a very negative risk to reward ratio - so in a word no.

mgellne

October 20, 2009 at 12:20 AM ET

An elliott-wave specialist in Germany expects the EUR/USD by 1.5047 than a sharp trend down to at least 1.2400 if not lower.

bschlossberg

October 20, 2009 at 02:01 AM ET

That would certainly take the most market players by surprise. The trade is very crowded, but its always difficult to call tops

Ichweissnicht

October 20, 2009 at 10:00 AM ET

new comer here.
nice to see the host here will reply comment soon.

to schlossberg, read your trading book before, nice idea on 2BB and 3BB. (but somehow hard to follow, as it needs to close half position first..)

thx

bschlossberg

October 20, 2009 at 10:30 AM ET

Nice to have you join us

narendrakumar

October 20, 2009 at 03:41 PM ET

i would like to read a book regarding all geometry patterns you suggest, in depth. can you help me ?

also i live in new jersey, can i visit your office personally if someone can explain me, if i understand that fully, i would prefer to open an account with you.

my e mail address is andy@bluelimos.com

narendrakumar

October 20, 2009 at 03:47 PM ET

i am waiting for an answer, please.

bschlossberg

October 20, 2009 at 03:55 PM ET

Please post you query on Rogers or Brad's articles. I am not a technician and they will be able to guide you.

GORODN

October 20, 2009 at 04:43 PM ET

Personally i think the EUR/USD will hit 1.5000 and up to 1.5050 for a run on stops only and maybe a little higher all depending on what the Dollar, Gold and oil are doing. commodity rally is still strong

::EX::

October 20, 2009 at 08:18 PM ET

EUR/USD: Pair hold a strong trend line and is above 1.4900.

Next target if the pair moves above 1.4968 Fib level will be 1.5053.

A move below 1.4829 will open doors for 1.4715 (trend line).

::EX::

October 20, 2009 at 09:58 PM ET

Trend line at 1.4900

jacobuzon

October 20, 2009 at 08:23 PM ET

I recommend that you subscribe to Schlossberg's bktrader service. He writes a bit more "in depth and personal" about trading strategies there.
Narendrakumar, he's not a big fan of technical analysis.

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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.