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Recovery Trade Reinvigorated -Euro to 1.5000?

Last updated 11/23/2009 4:59 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• EZ PMI better - services hits best reading in 2 years
• Gold hits another record high at $1167/oz.
• Nikkei closed for holiday, Europe higher on resource led rally
• OIl ar $77.46/bbl lasr
• Gold holds highs market eyes $1200/oz.

Overnight Eco

• AUD New Motor Vehicle Sales 3.7% vs. 3.1%
• EUR French Flash Manufacturing PMI 54.2 vs. 55.5
• EUR French Flash Services PMI 60.4 vs. 57.7
• EUR German Flash Manufacturing PMI 52.0 vs. 51.7
• EUR German Flash Services PMI 51.5 vs. 51.2
• EUR Flash Manufacturing PMI 51.0 vs. 51.3
• EUR Flash Services PMI 53.2 vs. 52.7

Event Risk on Tap

• CAD Retail Sales expected at 0.6%
• USD Existing Home Sales expected at 5.72M

Price Action

• USD/JPY recovers to 89.00 as risk flows improve into Europe
• AUD/USD makes a move through 92.00 as gold and risk frim up through the night
• GBP/USD back to 1.6600 but calendar barren
• EUR/USD better PMI data pushes it abpve 1,4950 as 1.5000 comes into view once again

Risk FX  slowly pushed higher at the start of a  holiday leaden week with EUR/USD once again flirting with the 1.5000 level in the wake of better than expected PMI data. Aussie meanwhile also rose steadily through the Asian and early European sessions adding more than 100 points to break above the 92.00 handle as resource companies rallied on the back of another record high in gold.

As we write earlier, “ Gold continues to set daily record highs it is encountering a rising chorus of criticism from skeptics who view at as the latest asset bubble to burst soon. However, while the precious metal may be vulnerable to a near term pull back in order to consolidate its latest gains, we believe the long term case for gold remains bullish. The metal remains a strong psychological store of value and more specifically it is the primary investment asset for expression of no-confidence in the fiscal policies of the state..

For the time being the rally in gold is climbing a wall of worry while the growing fiscal problems in G-10 universe continue to raise doubts about fiat currencies. If 2010 does not see a marked improvement in economic activity that quickly replenishes the tax coffers of G10 nations, the financial stress of the situation will likely result in fresh record highs for gold.”

Meanwhile on the eco front the Eurozone PMI data proved surprisingly buoyant with manufacturing printing at 51.0 versus 50.7 the period prior and services rising to 53.2 versus 52.6 the month earlier. Overall the composite PMI registered its best reading on more than two years coming in at 53.7 versus 53.0 in October boosted by better manufacturing in Germany and very strong service numbers in France which posted their best results in 37 months. Today’s data provides strong support to the recovery bulls with EZ economic performance clearly showing no signs of stress despite very challenging exchange rate conditions. The news should prove positive for risk flows later on in the day assuming US equities can extend the rally.

One possible bump in the road for a pro risk day in the North American session will be the Existing Home sales data due at 15:00 GMT. Markets are expecting a substantial increase to 5.71M units from 5.57M the month prior  but given the decline in builder sentiment the potential for a downside surprise is strong. Housing remains a critical component of the US economic recovery and if today’s data proves disappointing equities could unwind most of their overnight gains as the day progresses. On the other hand a strong print in the housing data could reinvigorate the bulls  and push EUR/USD through the 1.5000 figure with conviction prompting a flurry of  short covering  by the bears who bet  that last week was the near term top in the pair.

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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.