Is Risk FX Ready For a Correction?

Last updated 11/12/2009 5:29 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• AUD employment blows out forecasts rises for 2nd month in a row
• US 30 year on tap
• Asian bourses turn down into close, Europe lower
• OIl slips below $79/bbl $78.86 last
• Gold sets another high at $1122/oz.

Overnight Eco

• NZD Business NZ Manufacturing Index 50.6 vs. 51.5
• NZD Retail Sales flat vs. 0.4% eyed
• JPY CGPI -6.7% vs. -6.0%
• AUD MI Inflation Expectations 3.2% vs. 3.5%
• Employment Change 24K vs. -10K
• Unemployment Rate 5.8%
• CHF ZEW Economic Expectations 56.4 against 65 last
• EUR Industrial Production 0.3% vs. 0.6%

Event Risk on Tap

• CAD NHPI expected at 0.2%
• USD Unemployment Claims expected at 512K

Price Action

• USD/JPY continues to range around 90.00 but tilts downward as risk aversion sets in
• AUD/USD hits a 15 month high, but can't hold 9370 as risk sells off
• GBP/USD bounces off support at 1.6520 but remains lower
• EUR/USD slips towards 1.4900 as profit taking kicks in

A slow drift downward in risk FX tonight despite better employment numbers out of Australia as profit taking and weaker equity price action in both Asia and Europe weighed on the flows. In Australia the employment data once again blew out expectations printing at 24.5K versus projections of a -10.K loss. This was the second month in a row of positive job growth reaffirming the fact that the economy Down Under continues to be the strongest amongst the G-20 set.

We noted earlier, that the employment news increases the probability of yet another RBA rate hike in December that would take yield to 3.75% - the highest in industrialized world. We write that, “intermediate term prospects for the Aussie continue to look extraordinarily positive as the unit benefits not only from the anticipated rise in yield but from the persistent rise in gold& nbsp; as well. The yellow metal hit yet another record high today reaching $1122/oz. on reports that Barrick Gold& nbsp; will no longer hedge its book, lifting a massive offer from the market.

We continue to be bullish Aussie as the primary proxy for the recovery trade and believe that it can reach 9500 if risk appetite remains supportive into the close of the year. Alternately, with RBNZ and BOC remaining stationary at least through Q1 of 2010 the unit should also outperform the kiwi and the loonie on the crosses as interest rate differentials continue to widen.”

Meanwhile in Europe Industrial Production data missed estimates printing at 0.3% versus 0.6% forecast but nevertheless produced the fifth consecutive month of positive growth suggesting that the recovery continues albeit at a very gradual pace. The ECB monthly bulletin essentially reiterated Mr. Trichet’s remarks last week and upgraded its assessment of growth in 2010, but noted that inflation will remain muted at 1.6% - below the central bank’s target rate of 2%. Overall the tone of the communiqué indicates that ECB could remain stationary on rates throughout most of 2010, but will likely begin removing its ultra accommodative bias within a few months.

Today’s lackluster price action indicates that the recovery bulls are running out of momentum and will need fresh data to keep the rally alive. The North American calendar is once again barren with only the weekly jobless claims on the docket. A print below the key 500K mark would give the bulls a much needed boost and could revive risk flows as the day progresses. However, market sentiment appears to be ready for a turn after six days of gains and if the data does not prove supportive the path of least resistance in both equities and risk FX may be down.

FX Upcoming

Comments (1)

Stephan Smith

November 12, 2009 at 09:54 AM ET

The AUD will definitely beat down the USD with a metal baseball bat and a smile if Australia's employment numbers continue to increase the way it has. A working economy is a strong economy and if the Reserve Bank of Australia increases it's rate to 3.75%, then that's just another big reason to take out the black card and buy buy buy.

Gold is another story all together. With the USD going down like the tail of a dog that just got disciplined by its master, Gold will continue to rise. I say Gold will rise to $2,000 an ounce very shortly...but what do I know? The U.S.'s employment rate is in the red and we continue to print mononpoly money out of thin air. Yup, say hello to a future where you go to a vendor, ask for an ounce a gold and the owners says: 'That will be $2,745.01.'... I'm sure India (who just brought tons and tons of GOLD) are going...Cha-ing!

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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.