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Euro Recovers After Hitting Six Month Lows

Last updated 1/28/2010 5:17 AM ET (GMT -5) 19 Comments

Overnight Eco

NZD RBNZ Rate Decision 2.5% as expected
JPY Retail Sales -0.3% vs. 0.3% eyed
EUR German Unemployment Change better at 6K vs. 17k forecast
EUR Consumer Confidence -16 vs. -15

Event Risk on Tap

USD Unemployment Claims expected at 451K
USD Durable Goods Orders expected at 2.1%

Price Action

USD/JPY runs to 90.50 as risk flows return
AUD/USD rises more than 100 points off lows, back above .9000
GBP/USD remains well bid and targets 1.6300 into North America
EUR/USD recovers 1.4000 after steep drop in Asia

After a final flurry of risk aversion flows in early Asia trade that saw EUR/USD plummet to a six month low of 1.3930, risk currencies rebounded in the wake of a positively received State of the Union speech by President Obama that focused primarily on economic issues. President Obama stressed the need for Congress to pass the jobs bill, offered small businesses tax incentives to hire employees and promised to extend middle class tax cuts.

Instant reaction to Mr. Obama’s message was overwhelmingly positive with CBS news poll showing 83% of the audience in agreement with his policy objectives. The State of the Union speech also appears to have boosted investor confidence. By focusing primarily on economic growth, President Obama spurred risk appetite in capital markets sending equities, commodities and high beta FX higher in early morning European trade.

Whether the bounce can last remains to be seen, but risk assets have been under enormous liquidation pressure over the past month due to a combination of weaker economic data from G-20, a series of monetary tightening moves from China and political turmoil on both side of the Atlantic. Therefore a relief rally in risk was overdue and although the extent to the rebound remains uncertain we believe that it may continue for the rest for the week.

On the economic front, the EUR/USD received some mild support from the latest German unemployment data which printed better than forecast at 6K versus 18K projected. Joblessness did rise, but at a smaller than expected pace indicating that labor market conditions in Eurozone’s largest economy remain relatively stable.

In North America the focus early in the day will be on the Durable Goods number and the weekly jobless claims. Durables are expected to bounce to 2.1% from -0.7% the period prior and any upside surprise should add to the risk appetite with traders speculating that a strong Durable Goods number would foreshadow a better GDP read tomorrow. However, the confirmation of Fed Chairman Ben Bernanke is also scheduled for today (tentatively). Although his reappointment appears to be a done deal, any last minute drama is sure to create turbulence in the capital markets with risk assets once again coming under pressure and possibly reversing overnight gains.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	13:30	8:30	USD Unemployment Claims	451K	482K
USD	13:30	8:30	USD Durable Goods Orders	2.1%	0.2%

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Comments (19)

jet

January 28, 2010 at 06:57 AM ET

Either this market is crazy or I am, good news for the US should not lead to euro strength - this BS is getting a little old - the euro zone is a mess and no interest rate hikes are comming there for a long time - so when is this market going to wake up and stop this nonsense - if it's good news for the US recovery should be good news for the USD - this reverse correlation or funding currency or whatever BS traders are selling needs to stop and a good start would be you analysts explaining that it is in fact BS instead of acting like it's normal - thanks for listening - no I did not just take a loss on a trade (just in case you were wondering) i'm just sick of the BS - thank you

bschlossberg

January 28, 2010 at 07:25 AM ET

Speculative markets are never normal. I understand the frustration but its our job as analysts to look at what is rather than what should be,

Semaj

January 28, 2010 at 07:53 AM ET

Markets were going to pullback anyway. Overextended rallies, daily pivots overlapped with weekly pivots, S&R levels on larger time frames, fib levels hit as well, etc... When the forces line up the news gets trumped by gravity. The question for me is this risk OR profit taking at key physc levels from the big boys who trade larger time frames?

bschlossberg

January 28, 2010 at 07:55 AM ET

That's the big question and the answer will lie in the upcoming data and teh resolution of the Greece story.

schultzz.at

January 28, 2010 at 08:27 AM ET

To be honest, I cannot image a resolution of the Greece story any time soon. They have sold some bonds and gained some breathing room. They will have to refinance a 8.2 billion euro 5-yr bond maturing 04/20/10 and a 8.5 billion euro 10-yr bond maturing 05/19/10.
The 10-yr bond is currently yielding 6.8%. So they have to pay punishing yields which in itself could offset any progress they make in implementing austerity measures.
The research group 'Transparency International' considers Greece, along with Bulgaria and Romania, among the most corrupt countries in the EU27. It even compares these countries with Colombia.
Tom Schultz.

milanh-fx

January 28, 2010 at 03:10 PM ET

Hi Tom, can you say me, which country at all can repay his debt? Japan? USA? Great Britain? or Burkina Faso? Greek is a mess, you are right, but just some 3% of EU against what California ca. 5% of USA.

Milan

schultzz.at

January 28, 2010 at 08:06 PM ET

Hi Milan,
I don't think that any of these countries will repay their debt. A likely scenario for the U.S. is that we see a permanent rundown of capacity right now. In some years we may have some sort of mini boom with rising demand. The lack of capacity could lead to an increase in the general price level reducing the real value of debt.
California's woes may be comparable to Greece's, but the human mind tends to focus on some aspects and ignore others. Right now, credit markets and the EUR/USD seem to reflect more concern with the disintegrating euro area than with the fiscal mess in the U.S. on the federal, state and local level.
Tom Schultz.

Semaj

January 28, 2010 at 08:22 AM ET

B, just an idea for 360. In Kathy's report before How to Trade FOMC she had a table for the bulls & bears for USD of past news. How about a weekly or monthly fundimental scale for a currency that would be a QUICK reference to set bias from recent news since the news seems to whipsaw initially but then eventually the market moves with bias.I have also asked Kathy in the past about an intermarket correlation tab @ 360 that shows the strongest correlations so the global money flows can be seen. Just an idea:)

bschlossberg

January 28, 2010 at 08:28 AM ET

That's a good idea - I think you mean like a surprise index of macro data in G-10, correct?

Semaj

January 28, 2010 at 08:34 AM ET

Yeah, that sounds like a good title. Does it exist already somewhere?

alexjbrandt

January 28, 2010 at 08:46 AM ET

Heres a Intermarket correlation tool for free: (you can compare anything from bonds to currency)

http://www.traderplanet.com/vendor/barchart/intermarket_tool.html

try this if the above doesn't work:
http://www.traderplanet.com/library/intermarket

Hope this helps!

Semaj

January 28, 2010 at 08:53 AM ET

Cool, thanks AJ, I'll check it out.

alexjbrandt

January 28, 2010 at 08:59 AM ET

No prob, it should meet your needs. I have no idea how accurate it is but its the only one I could find that covers most if not all of the securities available to trade.

Semaj

January 28, 2010 at 09:26 AM ET

B, one more thought would be to get the tech team to find setups that ALIGN with market bias and post them as such. Together the FX360 team could rule the FX market :-)

aandrew60

January 28, 2010 at 03:11 PM ET

Boris, it looks like a triple top is forming right now on the EUR/USD??? For a drop???

DJFX

January 28, 2010 at 06:03 PM ET

in my opinion i think the pair went up simply on pullback after a hot run in the dollar. I dont think the data in the DG report was effective enoupg to make such movement, at least i havent seen it in recent past reports. In early US morning the pair retreated.

tjbab

January 29, 2010 at 12:59 PM ET

I think the euro will rise again based on the US senate voted down his spending freeze and want to up the debt ceiling another 1.9 trillion the USA cannot sustain this kind of spending.His SOTU speech was all smoke and mirros.HE wants to save 15 billion the national debt is almost 13 trillion YOU do the math.This is why people in this country are getting so angry.

bschlossberg

January 29, 2010 at 01:01 PM ET

True but Europe has its own problems looming with Spain

tjbab

January 29, 2010 at 01:56 PM ET

Thank you for your response I love this website,But Spain has been in trouble for years so why now its a big deal it was greece now its spain .I still belive the euro eill bounce back

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.

currency		trade idea
CAD/JPY Long term Opened 2/10/2012		Long from 77.6500 Stop at 76.65 Target at 78.9
GBP/CHF Medium term Opened 2/8/2012		Short from 1.4470 Stop at 1.4602 Target at 1.4352
AUD/CAD Medium term Opened 2/6/2012		Long from 1.0740 Stop at 1.0655 Target at 1.085

Euro Recovers After Hitting Six Month Lows

Boris Schlossberg

Director of Currency Research, GFT