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Euro and Pound Curtail Their Losses

Last updated 12/18/2009 5:44 AM ET (GMT -5) 6 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• EUR/CHF breaks 1.50 but SNB quiet in low liquidity trade
• IFO 94.7 vs.94.6 eyed
• Nikkei off slightly (-0.2%) Europe up 0.5% in lackluster trade
• Oil holds firm above $72/bbl -$72.64/bbl last
• Gold holds above $1100/oz.

Overnight Eco

• EUR German PPI 0.1% vs. 0.2% eyed
• EUR German Ifo Business Climate as forecast 94.7
• EUR Current Account -4.6B vs. -2.3B
• EUR Trade Balance 6.3B vs. 5.7B
• GBP Public Sector Net Borrowing 20.3B vs. 23.1B eyed
• GBP Prelim M4 Money Supply 0.0% vs. 1.4%
• JPY BoJ Rate Decision unchnaged at 0.10%

Event Risk on Tap

• CAD Wholesale Sales expected at 0.2%

Price Action

• USD/JPY back above 90.00 after early yen strength in Asia
• AUD/USD still below .8900 as market cautious on future rate hikes
• GBP/USD rallies back to 1.6200 with PSNB slightly better than forecast
• EUR/USD tries to recapture 1.4400 in wake of solid IFO

NOTE: I will be on vacation for the rest of the year. Next report will be on January 4th, 2010.

High beta FX finally stabilized in overnight trade after being pummeled all week long as eco data from Europe and UK proved mildly supportive halting dollar’s gains for  the  time being. In Europe the IFO report printed essentially in line with expectations while in UK the public sector net borrowing came in slightly better than forecast.

The IFO printed at 94.7 versus 94.6 eyed with both  the current assessment and business expectations subcomponents beating their projections as well. Nevertheless, the tone from IFO officials like Klaus Abberger was somewhat cautious as they pointed out that retail spending remained muted.  Mr. Abberger’s colleague Mr. Nerb  was more upbeat in his assessment highlighting  the pickup in manufacturing confidence. Still both IFO spokesmen emphasized the importance of keeping interest rates low in order to nurture the nascent recovery with Mr. Nerb suggesting that ECB should remain stationary for all of 2010 while Mr. Abberger   stating that rates will not be raised until H2 2010 at the earliest.

As we noted earlier, “If Mr. Abberger is correct, the risk trade which has been driven by the assumption that most of the G-20 central banks will move to normalize monetary policy in the first half of 2010, could lose its luster as global economic recovery stalls and officials maintain their dovish bias.”

Meanwhile in UK the PSNB was only 20.3 Billion against expectations of 23.1 Billion helping to fuel a rise in the pound to 1.6200 level. Still, the borrowing in November  was the highest on record. One small sign of optimism was the rise in cash tax revenue in November which is typically a deficit month suggesting a pickup in UK economic activity. However, that news was offset by the fact that gross mortgage  lending contracted by -14% on a year over year basis. The questions regarding UK fiscal condition continue  to haunt sterling, but today’s better than expected results may be  the first hint that government spending is coming under control.

With no North American event risk on the calendar and quadruple witching in US equity markets likely to create some intraday volatility, high beta FX could continue to consolidate its gains from overnight trade, Having fallen sharply over the past several days the EUR/USD appears to have finally found support in the 1.4300-1.4500 region and could stage a small short covering bounce as the day progresses. However, although tonight’s data results are good enough to stem the losses for euro longs they are not sufficient to provide a strong catalyst for another rally.

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Comments (6)

koolraul

December 18, 2009 at 10:01 AM ET

Enjoy your vacation and have a happy holidays.

bschlossberg

December 18, 2009 at 10:05 AM ET

Thank you

Doobp

December 18, 2009 at 12:00 PM ET

jus wondering, didnt the USDCAD hit your target? spread too high? haha. missed it by a few pips

FXDragon

December 18, 2009 at 01:21 PM ET

Targeting 95 on usdjpy looks reasonable while shorting eurusd. Also next nfp could mandate buying usd no matter what comes out. I hope i anlyzed right.

marshallgeese

December 18, 2009 at 02:01 PM ET

are we seeing a 123 pattern emerging in the EUR/USD. Will we have a short upper leg with another large downward leg similar to the one we are seeing now.

FXDragon

December 18, 2009 at 05:13 PM ET

What time frame?

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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.