Euro Back Above 1.5000 as Risk Returns - Will It Last?

Last updated 11/30/2009 5:27 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Abu Dhabi will support Dubai debt on case by case basi tempering credit fears
• Indian GDP prints at 7.8% vs. 6.5% eyed
• Asian equities bounce 3% but Europe fizzles, down -0.75%
• Oil quiet at $77.46
• Gold steady at $1168/oz.

Overnight Eco

• NZD Building Consents 11.7% vs. 5.5%
• JPY Manufacturing PMI 52.3 vs. 54.3 last
• AUD MI Inflation gauge 0.3% vs. -0.3%
• AUD New Home Sales -6.0% vs. -4.5%
• AUD Private Sector Credit 0.0% vs. 0.2%
• JPY Average Cash earnings -1.7%
• GBP Net Lending at 0.3B vs. 0.8B
• GBP Mortgage Approvals 57K vs. 59K eyed

Event Risk on Tap

• CAD GDP 0.2% eyed
• CAD RMPI 0.4% vs. -0.1% last
• USD Chicago PMI 53.4 vs.54.2 expected

Price Action

• USD/JPY bounces to 86.50 after report suggests that Jaoanese government agrees to measures to stop yen rise
• AUD/USD bounces to 91.50 but questions remain whether RBA will hike tommorow
• GBP/USD slips from 1.6600 on early EUR/GBP flows but finds bid again in mid mornig London trade despite lackluster data
• EUR/USD holds steady at 1.5040 into North American open

Risk FX staged a comeback on the first trading day of the week, after unexpected turbulence last week triggered by the possible default from Dubai World bonds. Over the weekend the Adu Dhabi central bank tried to calm investor fears by providing liquidity facilities for its member banks and stating that it “stands behind” lenders. The news helped soothe capital markets as equities in Asia bounced by nearly 3% but the opening rally in European stock markets fizzled with bourses trading -0.75% by mid morning.

As we noted earlier, “Many market observers have correctly pointed out that the scope of the Dubai World problem is miniscule in the greater scheme of things with liabilities in question equivalent to only 5 basis points of total US and European bank assets . Yet it is not the absolute value of the loss that is in question here but rather the psychological impact of the possible default. Such a move could result in a rapid contraction of risk appetite across all capital markets which in turn could threaten the nascent global economic recovery.”

On the economic front, the calendar was relatively barren with only a smattering of Australian and UK data on the docket. In Australia the New Home Sales slipped by -6.0% from -4.5% the period prior as the tightening policy of the RBA is clearly having an impact on the interest sensitive housing sector. Markets are expecting yet another 25bp hike tomorrow, but the question remains open whether the RBA will go for the unprecedented hat trick of rate increases amidst fresh uncertainty in the capital markets. The language from Australian monetary policy makers has been ambiguous and if they choose to remain stationary for the rest of the year, the Aussie could easily fall below .9000 as risk bets will be pared back on loss of momentum.

Meanwhile in UK Net Lending figures and Mortgage approvals both missed their mark printing at 0.3B and 57K versus 0.8B and 59K respectively, however most troubling of all was the sharp deterioration in GFK consumer sentiment which fell to -17 versus -11 eyed. – it’s first decline since May. Cable ignored the data and stabilized at 1.6500 after some early session selloff on EUR/GBP flows, but despite its appearance of unflappability we remain cautious on the unit and if the UK PMI data this week disappoints the pound could see a much sharper selloff as the week progresses.

In North America today the focus will turn to the Chicago PMI numbers due at 16:45 GMT. The market is looking for a slight pullback to 53.4 versus 54.2 the period prior. An upside surprise could help fuel a further rally in risk FX on a bet that global recovery momentum continues to gather pace. However if the data misses, the gains made tonight could easily unwind as markets remain cautious of a pull back in the risk trade ahead of the year end, As we noted earlier,” The central theme this week in FX is likely to revolve around this tension between the recovery bulls anticipating yet further improvement in the economic data and the bears who are betting on resumption of credit crunch fears that will suppress any rebound in activity.”

FX Upcoming

Comments (1)

hsbc

November 30, 2009 at 09:05 AM ET

option expiry

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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.