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Has Euro Topped at 1.5000?

Last updated 11/13/2009 5:52 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• PBOC official - any reval of yuan will be gradual
• EZ GDP - weaker at 0.4% vs. 0.6% eyed
• Asia, Europe slightly lower on last day of the week
• Oil drops to $77.46/bbl
• Gold off the highs at $1110/oz.

Overnight Eco

• JPY Revised Industrial Production 2.1% vs. 1.4%
• Household Confidence 40.5 vs. 40.9 forecast
• EUR German Prelim GDP bit lower at 0.7% vs. 0.8% eyed
• EUR French Prelim Non-Farm Payrolls flat vs. -0.2% projected loss
• EUR French Prelim GDP 0.3% vs. 0.6%
• CHF PPI -0.4% vs. 0.1%
• EUR Flash GDP 0.4% vs. 0.6%

Event Risk on Tap

• CAD Trade Balance
• CAD New Motor Vehicle Sales expected at 0.1%
• USD Trade Balance expected at -32.0B
• USD Import Prices expected at 1.1%
• USD Prelim UoM Consumer Sentiment expected at 71.2

Price Action

• USD/JPY continues to move off carry flows as 90.00 remains the pivot level
• AUD/USD slowly rises back towards .9300
• GBP/USD the bounce off 1.6500 continues as short squeeze on open pushes it to 1.6690
• EUR/USD rebound back to 1.4900 on mild return of risk

Risk FX staged a short covering rally at the start of early morning European trade today, but the move stalled in the wake of weaker than expected EZ GDP data  for Q3.  EZ GDP printed at 0.4% vs. 0.6% eyed while German GDP data came in at 0.7% vs. 0.8% forecast.  This was the first positive growth for the region this year reversing five straight quarters of contraction.  

Economic activity was boosted by exports and investment in equipment and buildings but private demand continued to lag as worries about labor market conditions kept  European consumers on the sidelines hampering growth. The data confirms our view that the recovery in the EZ will be slow and gradual resulting in a stationary monetary policy by the ECB for most of 2010.  

Meanwhile pressure on China from the APEC meeting to revaluate the yuan kept the yen bid throughout the early European trade especially after rumors swept the market that Chinese would acquiesce  to the demands of their Asian Pacific neighbors.  As we noted earlier, “Amongst the G-10  the yen will be the biggest beneficiary of any potential yuan revaluation because Japan both competes with China globally and at the same time exports heavily to that market. In fact China is Japan’s largest export market exceeding even US. Thus, Japanese manufactures should be able to earn more income on their Chinese revenues and at the same time find some relief on their margins in their battle with Chinese competitors.

However, we believe the impact of any yuan revaluation is likely to be minimal if Chinese follow the same script as in 2005 when they loosened the peg at a glacial pace allowing the yuan to appreciate by no more than 3%-5% over the course of the year. While stressing the need to grow domestic demand, Chinese policymakers continue to rely on exports as a foundational driver of growth and any action with respect to the yuan are likely to be a political gesture rather than genuine economic reform. “

The stall in the risk trade is likely to continue into the North American session today especially if the U of Michigan number s miss the mark. The market is looking for an uptick to 71.1 from 70.6 the month prior, but Tuesday’s downward surprise in the IDB Eco optimism survey suggests that consumers continue to be troubled by the deteriorating labor market conditions and that pessimism could translate into very tepid spending during the key Christmas season. With the recovery thesis now contingent on acceleration of final demand any disappointing news on the consumer front could trigger further profit taking in equities and drag high beta FX lower into the weekend.

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Comments (1)

Stephan Smith

November 13, 2009 at 07:12 AM ET

With oil and gold dropping in price, the USD may still be trying to gain strength. For the time being, the USD seems to be weakening against the JPY & the EUR once again.

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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.