Euro Breaks 1.5000 - Now What?

Last updated 10/21/2009 10:28 AM ET (GMT -5) 8 Comments

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Boris Schlossberg

Director of Currency Research, GFT

It took what seemed like an interminable ten minutes but EUR/USD finally broke the psychologically key 1.5000 barrier in early US morning trade, propelled there by supportive equity flows as the Dow approached the 10,100 level. The pair had repelled any and all efforts to penetrate the figure over the past 24 hours but finally succumbed to the pressure despite the massive barrier defense put forth by option players

Given the proximity of the 1.5000 level we were convinced that the market would try run stops there the longer the pair remained within striking reach. However, any further gains will be dependent on the Chinese data due later tonight, as well as the key IFO and PMI reports due out of the Euro-zone on Friday.

As we wrote earlier, “If Chinese data does surprise to the upside it could prove to be the catalyst for further gains in high beta FX…On the other hand, even a small disappointment in the numbers could prove to be lethal to the recovery trade bulls.”

Up to now the EZ recovery continued to expand despite higher exchange rates. However, the latest trade data out of Germany saw a sharp decline in its surplus as higher euro began to weigh on exports. With EUR/USD at 14 month highs competitive conditions for German industry will become even more difficult. Currently, the market expects mild increases in both IFO and PMI readings this Friday. however, if the numbers miss to the downside euro may not remain at 1.5000 for long.

Furthermore, ECB officials are unlikely to accept this latest rally unchallenged as the increase in the currency could result in the one things European policy makers fear the most – additional job losses. Up to now, Germany has been masterful at ameliorating the worst effects of the global recession by enacting a series of job mitigation schemes to minimize unemployment. However, the high euro may offer German manufacturers little choice but to slash payrolls if demand for exports declines. Therefore, while the path of least resistance in the pair remains to the upside, event risk on Friday could cap this move.

Comments (8)

FXDragon

October 21, 2009 at 10:47 PM ET

Started selling serious eurusd after crossing 1.50. Still long usdjpy.

er.lawsofnature

October 21, 2009 at 09:43 PM ET

Hi Boris,

Your article deals with the EUR/USD pair but I would like to ask you about the EUR/CHF pair. Why is it the Euro can not make gains against the Swiss Franc like it has against the USD and the Japanese Yen?

Thank you,

Ed

FXDragon

October 21, 2009 at 10:39 PM ET

I think thats a good question that deserves an answer.

FXDragon

October 21, 2009 at 10:42 PM ET

I never thought why cause i avoid that pair. Its intervened and the pips are lousy.

bschlossberg

October 22, 2009 at 01:24 AM ET

The CHF economy is in relatively good shape with little debt and low unemployment so the euro does not gain on it because its growth rate not any better

FXDragon

October 22, 2009 at 05:38 AM ET

Yeah its economy is also a lot smaller (love the watches and chocolats though, not to mention the banks). The whole country is almost the size of the city i live in.

Adie

October 21, 2009 at 12:19 PM ET

Hi Boris,

You mentioned barrier options at 1.500 for the EURUSD. Would be grateful if you could let me know how I can obtain information like that.

By the way, really enjoy Kathy's and your commentaries.

bschlossberg

October 21, 2009 at 03:08 PM ET

If you read the news feed from Dealbook 360 you will be able to find that information there

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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.