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Euro Finds Support As German Employment Rises

Last updated 10/29/2009 6:20 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• German Unemployment - once again much better than forecast -26K vs. 17K eyed
• RBNZ - no rate hike until H2 of 2010
• Asia drops more than -1.5%, Europe dips slightly
• Oil at $77.88/bbl
• Gold quiet at $1034/oz.

Overnight Eco

• NZD RBNZ Rate Decision 2.5% as expected
• NZD Trade Balance better at -424M vs. -675M eyed
• AUD CB Leading Index 1.8% vs. 1.0% last
• AUD HIA New Home Sales -4.5% vs. 11.4% last
• JPY Prelim Industrial Production 1.4% vs. 1.1% forecast
• JPY CSPI -3.2% vs. -3.3%
• EUR German Unemployment Change -26K vs. 17K
• GBP Net Lending to Individuals 0.7B
• GBP Mortgage Approvals 56K vs. 54K
• EUR Consumer Confidence -18 vs. -17

Event Risk on Tap

• CAD RMPI expected at 1.1%
• CAD IPPI expected at 0.2%
• USD Advance GDP expected at 3.1%
• USD Unemployment Claims expected at 522K

Price Action

• USD/JPY back to 90.80 on better risk flows
• AUD/USD recovers .9000 handle as risk returns
• GBP/USD trades above 1.6400 as mortgage data improves
• EUR/USD back above 1.4750 as labor news supportive

Risk FX recovered some of its losses in overnight trade after some better than expected data from Europe and UK helped to stabilize high beta currencies. In Europe the German unemployment once again surprised to the upside declining for the second month in a row while in UK mortgage approvals rose to their best level in 16 months.

German unemployment rolls declined by -26K versus expectations of a 17K rise while  the unemployment rate declined to 7.7% from 8.0 the period prior.  This was the second consecutive month of positive job growth but it is unclear whether the improvement is due to a genuine pickup  in economic activity or to further one-off effects from job mitigation schemes in the auto sector. Nevertheless, this was the  first major positive piece of news from the Eurozone this week and it provided support for a modest short covering  rally in the EUR/USD which took the pair  to 1.4750 by mid morning European trade. The pair now  finds support at the 1.4700 level and could  mount a counter trend rally back above 1.4800 if equity flows prove constructive in North American session.

In UK the mortgage approval numbers rose to 56K from 54K projected climbing to their highest level since June of 2008. Despite the weak GDP numbers last week, UK housing data has consistently shown marked impartment over the past several months and  is one of the reasons why cable has not reacted more negatively to the GDP news. The assumption in the market right now is that the worst is over for the UK economy and Q4 should finally see a rebound to positive growth. That thesis will be tested next week when a series of UK PMI readings will provide more concrete data to the market.  

Finally in New Zealand the RBNZ left rates unchanged as expected and offered a relatively dovish statement to the market noting that rate are unlikely to rise until the second half of the year. After dropping on the news, the kiwi recovered to 7250 as currency traders bet that the RBNZ will be forced to hike rates sooner rather than later, especially in light of much tighter policy from RBA. But as we noted earlier, “If markets see further evidence that global economic recovery is beginning to weaken, risk aversion flows could take kiwi back below .7000 over the next several weeks.”

In North America all focus will rest on US Q3 GDP due at 12:30 GMT. After yesterday tepid Durables number Goldman Sachs lowered its estimate to 2.7% from 3.0% initially projected and  if the data does indeed post below the 3% barrier, it could cause further weakness in equities which have been priced for 3.5%-4.0% GDP rebound. If risk aversion  returns, the overnight bounces in high beta FX are likely to be unwound  and we could see a test of recent range lows once again.

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Comments (2)

hsbc

October 29, 2009 at 10:09 AM ET

wats the reason behind the bidding tone in gbp?

GORODN

October 29, 2009 at 11:34 AM ET

looks like eur/usd back to 1.5000 soon

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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.