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Euro Correction Could Continue

Last updated 10/27/2009 5:38 AM ET (GMT -5) 12 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• French Business survey data continues to improve
• Chinese Industry official - Q4 IP may rise to 16%
• Asian equiteis lower by more than -1.5%, Europe up mildly on open
• OIl at $78/bbl
• Gold quiet at $1044/oz.

Overnight Eco

• AUD NAB Business Confidence 16 vs. -4
• CHF UBS Consumption Indicator .63 vs. .62 last
• EUR M3 Money Supply 1.8% vs. 2.1%
• EUR Private Loans -0.3% vs. -0.2.%
• GBP CBI Realized Sales n/a

Event Risk on Tap

• USD S&P/CS Composite-20 HPI expected at -11.9%
• USD CB Consumer Confidence expected at 54.1
• USD Richmond Manufacturing Index expected at 14

Price Action

• USD/JPY holds steady at 92.00
• AUD/USD better bid towards .9200 off NAB numbers and China news
• GBP/USD runs to 1.6380 on EUR/GBP liquidation
• EUR/USD cant hold 1.4900 as profit taking continues

A very quiet consolidative session in the currency market tonight. Risk FX received a boost early in the Asian session when a report from Chinese Ministry of Industry and Information suggested that Industrial Production could expand at a blistering 16% pace while the Ministry of Commerce noted that Chinese investments abroad have jumped 190%. However, after a quick burst above the 1.4900 handle, the EUR/USD once again dipped into the 1.4800’s as profit taking kicked in.

We noted yesterday that the risk asset trade has run into a wall of serious resistance as key psychological points. With Dow struggling at 10,000 S&P capped at 1100  and EUR/USD battling with  1.5000 the recovery rally looks exhausted as most of the good news appears to have been priced in. Yesterday’s sharp drop in the EUR/USD& nbsp; was classic case of stop tripping in  FX as the 1.5000 level failed to hold for the fourth time in a row.

Tonight, the weakness in the euro was caused more by cross selling in the EUR/GBP rather than any fundamental factors. The pair has skyrocketed on Friday after UK disastrous GDP data but has since traded steadily lower as demand for cable from the Middle East and profit taking continue to weigh on the euro leg.

Despite the very weak economic data, pound has managed to hold  its ground relatively well with market still unclear whether the BoE  will increase  its QE measures at its next meeting in November. If MPC officials feel that the Q3 data was the nadir of economic activity in UK, they may remain stationary which will be viewed as bullish for sterling and may push the EUR/GBP cross below .9000 as further positional adjustments take place.

With EZ calendar barren today, save for third  tier data, attention will turn to the North American session where the most important release of the day will be the Consumer confidence numbers due at 14:00 GMT. The market anticipates a slight rise to 53.7 from 53.1 the month prior, but given the miss in U of Michigan numbers and the stall in the rate of improvement of weekly jobless claims, the possibility of downward surprise remains strong. A miss on the data could spur further risk aversion in equities and pull the EUR/USD down to a test of 1.4800 as correction in the recovery trade looks likely to continue.

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Comments (12)

FXDragon

October 27, 2009 at 07:14 AM ET

You often mention demand for cable from middle east. How do you see what Arabs are buying? Are they the only ones buying it?

bschlossberg

October 27, 2009 at 08:33 AM ET

We get that information from our interbank sources

GORODN

October 27, 2009 at 07:40 AM ET

could get interesting if the eur/usd breaks 1.4860

FXDragon

October 27, 2009 at 09:29 AM ET

its gonna suck if it gets down to 1.4800. i hate losing:)

hsbc

October 27, 2009 at 08:21 AM ET

arabs love english football. look at the number of football clubs under arabs

FXDragon

October 27, 2009 at 09:23 AM ET

Owning a soccer club doesnt bring impressive profits as anyone might think. They might be wasting oil money for its charisma. Reaching 100 a barrel is gonna open the way for speculation up to 130 again. I know what you did last summer:))

alexjbrandt

October 27, 2009 at 06:47 PM ET

Lol. But I really don't want to pay $4+ for a gallon of gas again :( I suppose a person could go long on oil, and just hedge their future gas cost against a higher price in oil.

lendingtriad

October 27, 2009 at 01:09 PM ET

I LOVE THE BEARISH MARKET..........(GO BEARS!!!!!!)

Mert

October 27, 2009 at 03:40 PM ET

BEARISH Markets Rule (@lendingtriad Sadly the Bears lost :-))

jet

October 27, 2009 at 05:30 PM ET

Technology and transports did poorly today the equities rally might be dead in the water - is there another sector that can step up and take the equities markets higher - well we'll see - I don't think so - This rally is getting long in the tooth and has been based lately on earnings that "beat expectations" - maybe because expectations were so low to begin with??? Bottom line earnings that beat low expectations does not a real rally make - The dollar is set to correct AMEN!!!

jet

October 27, 2009 at 05:33 PM ET

Technology and transport which have lead the equities rally along with bottom line earnings the beat very low exoectations are comming to an end the USD is set to bottom AMEN

jet

October 27, 2009 at 05:35 PM ET

Make way for the dollar BULL

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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.