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Top Stories

• UK Telegraph - Pound may face sovereign debt risk
• German Unemployment falls once again raising collective to -54K since turn
• Equites mixed with Nikkei up 25bp but Europe lower at the open
• Oil nears $82/bbl
• Gold up at $1127/oz.

Overnight Eco

• AUD HIA New Home Sales 0.3% vs. -6.0% last
• JPY Monetary Base 5.2% vs. 3.5%
• EUR German Unemployment Change -3K vs. 6K eyed
• EUR CPI Flash Estimate 0.9% vs. 0.9% eyed
• GBP Construction PMI 47.1 vs. 47.6 eyed

Event Risk on Tap

• CAD RMPI
• CAD IPPI
• USD Pending Home Sales
• USD Factory Orders
• USD Total Vehicle Sales

Price Action

• USD/JPY breaks 92.00 as risk aversion, profit taking sweep Asia
• AUD/USD steady above .9100 but .9150 caps for now
• GBP/USD hurt by Telegraph article as it slides more thna a cent but 1.60 holds for now
• EUR/USD tumbles off the 1.4470 highs but holds 1.4400 as GE labor data improves

Risk currencies reversed their Asian session gains after an article in UK Telegraph suggested that the country may face financing troubles in the year ahead. The article quoted US fixed incomes investment group PIMCO as stating  that it will not  be a buyer of Gilts in 2010 given the massive supply coming to the market.

Cable dropped to 1.6030 – fully 200 points below highs set yesterday in the aftermath of the news as risk aversion fears swept the market.  The unit also saw no support on the economic front as UK Construction PMI data printed at 47.1 versus forecast of 47.6. The reading was slightly better than the 47 result the month prior, but the data indicates that the housing sector remains in a slump mired below the 50 boom/bust line for the 23rd month in a row.

As we noted earlier, “For now however, the tug of war between the bulls betting on a stronger recovery and growth prospects and bears fearful of financing troubles ahead will likely continue, with 1.6000 once again the immediate level of interest and the recent swing low of 1.5837 the key level of support.”

 

Meanwhile in  Europe the German unemployment data once again beat expectations printing at -3K versus 7K eyed with collective unemployment now reduced by -54K since the turn in the German economy in the 2nd half of the year. The country has clearly benefited from the various job mitigation schemes and the surprising pick up in the export sector which has helped to minimize the damage in the labor markets. The EUR/USD has held its recent gains at 1.4400 and should the eco data prove supportive for the rest for the rest of the week the unit is likely to outperform the pound on a relative basis.

The EUR/GBP cross rallied to .8997 in the aftermath of today’s news, but was met with a flurry of profit taking at the .9000 level. Still we believe that if the risk aversion flows accelerate into the North American session, the .9000 level will be recaptured, as financing fears will dog cable once again while the issues in Europe will be forgotten for the time being..

Turning to North American trade the eco calendar is relatively subdued today with only Pending Homes and Factory orders on the docket. The two releases are unlikely to have much impact on the market, but traders may also focus on the Total Vehicle sales due throughout the day. The key metric will be the 11M annual run rate. If the auto industry sees a rise to those psychologically important levels it would suggest that the US consumer spending may be slowly starting to accelerate after finally stabilizing and could provide a lift to the dollar especially against the yen

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
CAD	13:30	8:30	CAD RMPI		2.5%
CAD	13:30	8:30	CAD IPPI		-0.3%
USD	15:00	10:00	USD Pending Home Sales		3.7%
USD	15:00	10:00	USD Factory Orders		0.6%
USD			USD Total Vehicle Sales		10.9M

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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.