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Euro Up on Hopes For EU Summit

Last updated 2/9/2010 6:00 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• UK Trade deficit expands to widest gap in a year
• Euro rallies on hopes for EU summit on Thursday
• Asian equities slightly lower but Europe up on summit hopes
• Oil at $72.40/bbl
• Gold holds steady at $1068/oz.

Overnight Eco

• JPY Prelim Machine Tool Orders up 192%
• EUR German Final CPI -0.6% as expected
• EUR German Trade Balance better at 16.7B vs. 14.8B eyed
• GBP RICS House Price Balance continues to improve 32% vs. 28%
• GBP BRC Retail Sales monitor worst in 15 years at -0.7%
• GBP Trade Balance expands to -7.3B vs. -6.6B forecast

Event Risk on Tap

• USD IBD/TIPP Economic Optimism expected at 49.3
• USD Wholesale Inventories expected at 0.5%

Price Action

• USD/JPY rises steadily to 89.70 as risk flows return
• AUD/USD takes out .8700 in conjunction with rally in risk
• GBP/USD weakest of all below 1.5600 as eco data weighs
• EUR/USD trades above 1.3700 on better TB data and hopes for EU summit

High beta currencies rallied in early morning European trade today on back of speculation that authorities will help tackle Greece’s mounting fiscal problems at the EU summit this Thursday. News that Jean Claude Trichet will leave a meeting of policy makers in Sydney a day early to attend a gathering of European Union leaders, improved sentiment in capital markets as traders anticipated that officials will come to Greece’s aid.

Typically the EU holds summits four times a year with the first one generally scheduled for start of March, but this Thursday’s special gathering was made at the urging of EU President Herman Van Rompuy  and is indicative of the impact  of the Greek fiscal crisis on European economic affairs. Since concerns regarding Greece have started to mount, global equity markets have lost $4.5 Trillion in value as investors began to fear the possibility of a wider contagion in the region.

Mr. Trichet’s surprise attendance of the EU meeting should provide a boost of confidence to the markets. These days Mr. Trichet is seen not only as the President of the ECB but as the unofficial head of all of EU and his stature could afford him the power to take a leadership role in crafting a solution for Greece. Still, the resolution of the Greek problem is difficult under the current EU political structure.

Furthermore,  Mr. Trichet has been adamant in his prior statements that every EU member should clean up their own fiscal mess and may not necessarily support a supra-national solution that would be required to provide Greece with the bailout it needs. If the EU summit produces only statements of intent rather than policy actions the EUR/USD will resume its slide on investor disappointment. However, Mr, Trichet’s  surprise attendance is a sign that  EU officials recognize the fact that time for rhetoric is over and time for action must start.

Meanwhile on the economic front the news was mixed with German Trade Balance printing  better than expected at 16.7B versus 14.8 eyed but UK data coming in much weaker  at -7.3B vs. -6.6B forecast. The UK trade gap was the widest in more than a year and coming on the heels of an announcement that BRC Retail Sales monitor figures saw their worst January in 15 years helped weigh on the pound which remained the weakest high beta currency of the night. Cable was also pressured by rumors that UK and Ireland own a sizable portion of Greek bonds. The collapse of confidence in capital markets highlights pound’s vulnerability going forward. With UK economy so heavily dependent on the finance sector any further turbulence is likely to translate into weaker UK economic performance putting yet more pressure on the unit.

In North America trade today the calendar is relatively light, but markets may react to the Economic optimism figures coming out at 15:00 GMT today. If sentiment crosses above the key 50 boom/bust line it may improve risk appetite as the day progresses and drive equities back towards the psychologically important 10K level while USD/JPY targets 90.00 once again.

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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.