Euro Rides the Rollercoaster As Funding Fears Escalate

Last updated 1/6/2010 5:24 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• ECB Stark - No rescue for Greece comment sends euro tumbling
• UK Services PMI bit better at 56.8
• Equites mixed with Nikkei up again but Europe lower
• OIl steady ablove $81/bbl
• Gold at $1123/oz. last

Overnight Eco

• AUD AIG Services Index 50.0 vs. 52.5
• AUD Building Approvals 5.9% vs. 3.1% eyed
• EUR Final Services PMI 53.6 vs. 53.7 eyed
• EUR Industrial New Orders -2.2% vs. -1.% expected
• EUR PPI 0.1% vs. 0.2%
• GBP Nationwide Consumer Confidence 69 vs. 72
• GBP BRC Shop Price Index 2.2% vs. 0.2%
• GBP Services PMI 56.8 vs. 56.6 eyed

Event Risk on Tap

• USD Challenger Job Cuts
• USD ADP Non-Farm Employment Change
• USD ISM Non-Manufacturing PMI

Price Action

• USD/JPY remains firm above 92.00 in quiet trade
• AUD/USD rallies to 91.50 as housing data remains strong
• GBP/USD holds bid all night long and PMI services helps to keep it above 1.6000
• EUR/USD recovers from early sell-off jitters on Stark comments to trade above 1.4360

The EUR/USD went on a rollercoaster ride in late Asia and early European trade after ECB board member Jurgen Stark stated that markets were "deluding themselves" in thinking that member states would "put their hands in their wallets to save Greece", Mr. Strak’s comments triggered an immediate sell off in the unit as traders feared that Greece’s fiscal problems could put stress on the union, but by midday European trade the single currency recovered all of its losses and was trading above 1.4350 once again.

As we noted earlier, “Tonight’s fireworks are merely an opening gambit in further negotiations with Greece and will likely become resolved especially if the region’s economy continues to recover in 2010 ameliorating some of the fiscal problems it faces. Still, the concerns regarding the fiscal problems in EU could continue to weigh on the unit until markets see some concrete austerity plans from politicians in the region.”

The rebound in the euro was partly due to continued positive mews on the economic front as the final December PMI Services for the region printed at 53.6 essentially unchanged from the 53.7 result the month prior, indicating that demand remains above the key 50 boom/bust line. The recovery story is the best antidote to the current concerns over fiscal funding and if growth in the region continues to expand at the current pace into 2010 it will mollify most of current market worries as an increase in tax revenue will begin to close or at least steady some of the budget gaps.

The recovery theme helped the pound as well with UK PMI Services just beating expectations at 56.8 versus 56.7 eyed as data remained firmly in expansionary territory. This was the eighth consecutive month of 50 plus readings with new business component climbing to 57 – its highest value in 27 months. The services data comports well with the strong PMI manufacturing results on Monday and confirms the expectations that UK growth will finally turn positive in Q4.

Turing our attention to North America the event risk calendar is especially busy today with focus on both jobs and the Fed. The ADP report is due at 13:15 GMT and although the data has seen horrible correlation with the NFP it could cause a temporary flutter if it misses to the downside given the market’s high expectations of positive job growth in this Friday’s report. The ISM Services number due at 15:00 GMT will be of much greater import to the market especially since its employment component tends to be the best predictor of NFP results. Finally at 19:00 GMT the markets will get a glimpse of the FOMC notes with traders looking for any hint of an exit strategy.

If the US eco data proves supportive its should translate into a tightening of short term Treasury yields which in turn could help rally USD/PY towards the 93.00 handle once again. On the other hand a big miss could put the dollar on the back foot for the rest of the session as concerns will mount that US is once again lagging in the global recovery race.

FX Upcoming

Comments (1)

FXDragon

January 06, 2010 at 12:48 PM ET

Do not put money in long term notes. Yields will go up in the future. Stocks are preferred.

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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.