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Euro Holds 1.4800 - Will the Risk Rally Continue?

Last updated 10/30/2009 4:51 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• BOJ keeps rates at 0.10% but removes some credit stimulus
• Greman Retail Sales disappoint at -0.5% vs. 0.7% eyed
• Asia equity marktes jump 1.5% on follow through from US GDP
• OIl near $80/bbl at $79.85 last
• Gold at $1047/oz

Overnight Eco

• NZD Building Consents 3.3% vs. 1.8% last
• JPY Manufacturing PMI 54.3 vs. 54.5
• Household Spending 1.0% vs. 1.2%
• Tokyo Core CPI -2.2% vs. -2.0 forecast
• National Core CPI -2.3%
• Unemployment Rate -5.3% vs. 5.6% eyed
• GBP GfK Consumer Confidence -13 vs. -14
• AUD Private Sector Credit drops -0.2% vs. 0.2%
• JPY Housing Starts -37%
• EUR Unemployment Rate n/a

Event Risk on Tap

• CAD GDP expected at 0.1%
• USD Employment Cost Index expected at 0.4%
• USD Personal Spending expected at -0.4%
• USD Personal Income expected at 0.1%
• USD Chicago PMI expected at 48.6
• USD Revised UoM Consumer Sentiment expected at 70.1

Price Action

• USD/JPY drops below 91.00 as BOJ removes some stimulus
• AUD/USD runs to 9150 as bounce form 9000 support continues
• GBP/USD hovers near 1.6550 in quiet trade
• EUR/USD 1.4800 proves support despite weak German Retail Sales

A listless night in the currency market tonight as most risk FX marked time by consolidating yesterday large gains in the wake of surprisingly robust US GDP number. The yen strengthened on the back of a more hawkish tone  from BOJ while euro and cable drifted lower as German Retail Sales once again printed negative and UK housing  prices  rose less than expected.

In Japan the BOJ kept rates at  0.1%  but decided to allow some of its simulative measures to expire in December. The central bank will terminate its direct purchases of corporate bonds and will exit the commercial paper market stating that “it becomes necessary to adopt the most effective method for money market operations that conforms to changes in financial markets.”

We noted earlier that, “Japanese monetary officials are beginning to see signs of stabilization in the Japanese economy after it experienced the worst contraction in the post war era earlier in the year. The BOJ is likely to remain cautious for another quarter at minimum, but its gradual retreat from the money market suggests that it no longer feels that economic conditions merit emergency measures.”

Meanwhile in Europe, German Retail Sales declined for the second month in a row and the third out of the past four printing at -0.5% versus 0.7% eyed. Consumers in Eurozone largest economy are clearly concerned about labor market conditions – a fact that was evident in the latest GFK confidence data which also disappointed. Despite the fact that unemployment rolls continue to be reduced due to job mitigation schemes, consumer attitudes remain cautious and could prove to be a problem for European GDP growth in Q4.  

On the other hand, French consumption data has been markedly stronger than the results from Germany and may help offset some of the drag. Still,  the EZ economy cannot grow on exports alone and German consumption will need to pick up if the recovery in the EZ were to be sustain itself. The EUR/USD drifted towards the 1.4800 figure on the initial reaction to the news, but found support at that level for now and will likely consolidate until the North American session.

Yesterday’s GDP print was a welcome boost for the recovery bulls, but the data is of course backward looking and in order for the rally to continue markets will have to see further proof of US economic expansion. Today’ s Chicago PMI data due at 13:45 GMNT will likely be the primary driver of trade. The market is looking for an improvement to 48.8 from 46.1 the period prior, but if the report can cross the key 50 boom/bust  barrier it could provide further support to high beta currencies as they try to recover from a week of profit taking.

Finally end of the month flows suggest that dollar selling by equity managers may be smaller this month but may nevertheless prove helpful to the recovery trade especially if US fundamentals provide the catalyst for further gains. 

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Comments (2)

m.hollingshaw

October 30, 2009 at 10:57 AM ET

Given that recently (for the last year or so) risk aversion has held sway, what would we look for to see when positive US data will be positive for the USD and help strengthen it rather than purely increasing risk appetite.

GORODN

October 30, 2009 at 11:18 AM ET

eur/usd breaks 1.4700 then 1.4500 comes back in to play

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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.