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Will Risk Appetite Return or Will EUR/USD Tumble to 1.4700?

Last updated 10/28/2009 5:35 AM ET (GMT -5) 8 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Australian CPI data hot, but not enought for 50bp hike
• EZ Inlfation remains tepid
• Asia and Europe lower again as MSCI down for 7 straight days
• Oil at $79/bbl
• Gold trickles lower to $1037/oz.

Overnight Eco

• JPY Retail Sales -1.4% vs. -1.5%
• AUD CPI 1.0% vs. 0.9%
• NZD NBNZ Business Confidence lower at 48.2 vs. 49.1
• EUR German Import Prices -0.9% vs. -0.7%
• EUR German Prelim CPI n/a

Event Risk on Tap

• USD Durable Goods Orders expected at 1.2%
• USD New Home Sales expected at 443K

Price Action

• USD/JPY risk aversion pushes pair to 91.00
• AUD/USD no help from CPI as .9100 broken and .9000 looks like it may be next
• GBP/USD drops close to 1.6300 in sudden mid morning selloff
• EUR/USD rebounds above 1.4800 but capped in quiet trade

Another listless night of trade in the FX market dominated by risk aversion flows as both Asian and European equities sold off and the MSCI index  declined for the seventh straight day in row. With European eco calendar once again empty, the only news of note was from Asia Pacific where the Australian CPI printed a tad hotter than forecast.

Australian CPI data came in at 1.0% versus 0.9% expected and as we pointed out earlier, “The news suggests that despite the appreciating Aussie price pressures are beginning to percolate in the Australian economy as demand continues to grow. However today's data was well within the range of forecasts and remains contained suggesting that the RBA is unlikely to raise rates by a more aggressive 50bp in November…With RBA rate hike now most likely limited to 25bp the pair could drift lower to test the .9000 level if risk aversion flows continue to dominate trade for the rest of the week.”

One other troubling piece of news out of Asia Pac was the New Zealand NBNZ Business Confidence survey which printed at 48.2 versus 49.1 the period prior. With market all primed for the RBNZ to follow the RBA as the next commodity dollar central bank to raise rates, today’s decline in business confidence augurs badly for this scenario and suggests that Mr. Bollard and company may remain stationary for quite some time.  The RBNZ will issue its monetary statement today at 20:00 GMT, perhaps providing the market with more clarity. However, if the New Zealand central bankers stress the fact that rates will remain at 2.5% for the foreseeable future, the kiwi could see further profit taking possibly retreating to the .7200 figure.

Yesterday’s shocker of US consumer confidence number continues to weigh on the currency market with many participants now questioning the strength of the economic rebound. That’s why today’s US Durable Goods report could prove pivotal to this week’s direction of trade. The market anticipates a jump to 0.6% in the core number from -0.3% the month prior. However, if the data once again misses and prints flat or negative on the month risk aversion flows are likely to accelerate with EUR/USD possibly drifting towards 1.4700 by the end of North American session.  A strong report however, could restore the confidence of the recovery bulls and the risk trade could see a comeback at least for a few hours.

FX Upcoming

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Comments (8)

FxBeast09

October 28, 2009 at 10:11 AM ET

Can anyone give me an opinion as to why the GBP is trading so strong against the AUD in the last week? The economic numbers have been bad for Britain as of late along with increased talk about increased quantitative easing. The Aussie's have one of the strongest economies and are expected to raise rates next week. Is this trend/correction going to continue or are we going to see a parabolic move to the downside next week?

bschlossberg

October 28, 2009 at 10:27 AM ET

Profit taking on AUD and short covering on GBP. The AUD data is all priced in and further upside surprises are not in view while UK data is showing that the worst is over- thus the reversal in the pair

hsbc

October 28, 2009 at 10:34 AM ET

i am still not convinced abt usd strength. as long as fed doesnt hike, carry play will still dominate esp as we enter yr end when mkt liquidity becomes poorer

FXBulldog

October 28, 2009 at 01:03 PM ET

Sorry, but now is not the time for logic with the USD. Hold onto your seat, USD strength will be huge in the coming weeks as reality dawns about the false economic recovery!

GORODN

October 29, 2009 at 12:40 PM ET

Maybe, but only if the Fed decides to raise rates, otherwise the Dollar will continue its down trend

hsbc

October 28, 2009 at 07:01 PM ET

u may be right on a short term basis but i am more of a medium term trader. after falling close to 3.5 big figs, aud looks cheap in terms of rsi. and the carry is good

jtoon58

October 29, 2009 at 10:28 AM ET

For tax reasosns before 17th Dec I need to exchange a reasonable amount of $ to EUR and then need to trade them back again to $. Obviously I need to pick a period during sustained EUR strengthening, is this as good a time as it is likely to get between now and Dec?.

GORODN

October 29, 2009 at 12:07 PM ET

No time to be short the eur/usd yet. maybe at 1.5000 but over that were looking at 1.5100 w/o a doubt

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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.