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Can Euro Maintain Momentum?

Last updated 11/19/2009 2:34 AM ET (GMT -5) 3 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Kiwi craters after opposition protests monetary policy
• Mitsubishi UFJ IPO weighs on Topix spurring risk aversion
• Asia lower by 2%
• Oil just below $80/bbl
• Gold drops to $1140/oz as buck gains

Overnight Eco

• JPY All Industries Activity -0.6% vs. -0.1% projected
• CHF Trade Balance n/a
• GBP Retail Sales n/a
• GBP Public Sector Net Borrowing n/a
• GBP Prelim M4 Money Supply n/a

Event Risk on Tap

• CAD Foreign Securities Purchases expected at 6.63B
• CAD Leading Index expected at 0.8%
• CAD Wholesale Sales expected at -0.3%
• USD Unemployment Claims expected at 501K
• USD Philly Fed Manufacturing Index expected at 12.3
• USD CB Leading Index expected at 0.5%

Price Action

• USD/JPY drifts to 89.00 as risk aversion kicks in
• AUD/USD slides in sympathy with kiwi but finds bids at 92.50
• GBP/USD hovers at 1.6700 ahead of Retail Sales
• EUR/USD at 1.4900 as riak aversion weighs

Our final dispatch from Dubai as we head home tomorrow and will publish next on Monday from New York,

Risk aversion came back in Asian trade today with Topix sliding more than 2% on the Mitsubishi UFJ IPO pushing shares lower. After rebounding to 89.50 during the US session yesterday  USD/JPY continues to hover  near the 89.00 figure as  weaker  equities press the pair lower. We continue to believe that yen could strengthen further aided by both risk aversion flows and the nagging issue of yuan revaluation . Unless the dollar strengthens  materially, providing some relief for export  led Asian economies and the Europeans we think yuan reval story will persist and the Chinese will have to respond to world pressure even if the move may be largely ceremonial rather than  economic.

Meanwhile the stress of an appreciating currency on trade flows was felt in another Asia Pac economy today after New Zealand’s opposition party criticized governments monetary policy. “The system we have causes widespread damage to the tradable sector,” Labor Party leader Phil Goff said today in Wellington. “The battle against inflation is no longer New Zealand’s sole over-riding policy objective.”

The rift in economic performance between New Zealand which relies primarily on foodstuffs for its export income and Australia whose export base is broader and much more industrial in nature continues to grow. The kiwi export sector is far more sensitive to price pressures as its product offering is much more vulnerable to the substitution effect while the Australian export base is much resilient given the  seemingly inelastic demand from the Chinese for iron ore products. We continue to like the Aussie against both kiwi and the loonie believing that the Australian economy will benefit  most from recovery growth and may receive an additional boost from resurgent  gold prices.

In North America the focus will center on the weekly jobless claims numbers with the magical 500K barrier tantalizingly within view. However as many analysts have pointed out the pace of improvement in US labor conditions has been so glacial  that  markets have not responded aggressively to the news. With both Geithner and Trichet on the docket as well currencies could  be vulnerable to whipsaw action from the rhetoric.of the two men

Generally the price action over the past 48 hours has frustrated both bulls and bears as consolidation continues. The risk trade  is looking for the next catalyst to take it higher and in the absence of such data  the pressure to take profits may grow as we head into the close of the year resulting in deeper correction in EUR/USD.

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Comments (3)

FXDragon

November 19, 2009 at 07:46 AM ET

I'm not frustrated by the rollercoaster, it gives me an adrenalin rush. What i'd really like to see is an ascending triangle in eurusd. Lets see... Whts hapnin' in Dubai? I heard its hot as hell down there in summer. Im in Turkey.

Have a good flight,

bschlossberg

November 19, 2009 at 08:04 AM ET

I am at the Middle East Forex expo. Thanks will be back Monday

zaidi

November 19, 2009 at 06:21 PM ET

i missed the chance to see u in Dubai... Bschlossberg

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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.