Euro Bounces From Better IFO But Will 1.5000 Crack?

Last updated 11/24/2009 5:21 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Shanghai, Nikkei slide lower triggering risk aversion in FX
• IFO beats handily sparking a risk rebound
• Asian equities drop -1%+, Europe lower on open
• Oil at $77.48
• Gold comes off the highs to $1164/oz.

Overnight Eco

• AUD CB Leading Index 0.3% vs. 1.5% last
• CHF UBS Consumption Indicator .87 vs. .67 last
• EUR German Final GDP 0.7% as expected
• French Consumer Spending much stronger ar 1,1% vs. 0.5%
• CHF Employment Level 3.96M as forecast
• EUR German Ifo Business Climate 93.9 vs. 92.5 eyed
• GBP BBA Mortgage Approvals 42.2K vs. 44K forecast
• GBP Prelim Business Investment -3.0% vs. -3.5%
• EUR Industrial New Orders 1.5% vs. 0.7%

Event Risk on Tap

• USD Prelim GDP expeected at 3.0%
• USD Prelim GDP Price Index expeected at 0.8%
• USD S&P/CS Composite-20 HPI expected at -9.1%
• USD CB Consumer Confidence expected at 47.6
• USD HPI expected at 0.2%
• USD Richmond Manufacturing Index expected at 10

Price Action

• USD/JPY moves towards 88.50 as risk aversion takes hold
• AUD/USD hits a low of .9130 on risk selloff - .9090 viewed as key intermediate support
• GBP/USD back to 1.6500 as mortgages bit softer than eyed, focus on King speech
• EUR/USD bounces off 1.4900 after IFO improves better than forecast

Better than expected IFO results reversed some of the risk aversion flows that dominated currency trading in Asia and Europe today but the overall tone remained cautious ahead of the first revision of US Q3 GDP data due at 13:30 GMT. The IFO survey of business sentiment printed at 93.9 – a full two points better than the month prior - and considerably better than the 92.5 eyed.

Gernot Nerb, chief economist from IFO noted that,” "Expectations have improved despite the stronger euro. But if it should move up even higher than it is in the range now we have seen the past days it could be a problem. But at the moment, it looks like the companies can cope with it".

Still, the positive IFO news was somewhat offset by the announcement from GM that it intends to cut 9,000 jobs from its Opel subsidiary. As we wrote earlier, “Employment stabilization continues to be the key to further EZ growth in 2010. The region has been able to avoid the draconian job cuts seen in the US, by utilizing a variety of job-mitigation and fiscal stimulus schemes, but analysts worry that any slowdown in demand in H1 of 2010 will precipitate another round of layoffs which would snuff out the nascent recovery.”

Although the IFO helped to lift euro off its lows at 1.4900 risk currencies remained on the back foot for most of the night as Asian equities failed to follow through on yesterday’s triple digit gains in the Dow. The Nikkei was off by nearly -1% while Shanghai dropped a more alarming -3%. Most analysts chalked up the move to mere profit taking and concerns over the need for Asian banks to raise fresh capital. However, the price action so far this week does indicate that the recovery trade is having a very difficult time making forward progress despite positive fundamentals.

This consolidation and profit taking may continue for the near term and if the US data today which includes the GDP revisions and the Consumer Confidence numbers at 15:00 GMT miss to the downside, risk aversion flows could return during the North American session. Given the sharp drop in U of Michigan data, such a scenario is distinct possibility.

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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.