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Euro Steady But Pound Wobbles After Weak Employment Results

Last updated 2/17/2010 5:43 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• BOE Minutes 9-0 on QE pause but employment shocks to the downside
• FOMC Minutes key focus for North American trade
• Both Asian and European bourses up stongly in follow up of DJIA
• Oil at $77/bbl
• Gold at 1122/oz continues recovery

Overnight Eco

• AUD MI Leading Index 0.5% vs. 1.0%
• JPY Tertiary Industry Activity -0.9% vs. -0.2%
• EUR Trade Balance better at 7.0B vs. 4.2B eyed
• GBP Claimant Count Change 23.5K vs. -14.6K
• GBP Average Earnings Index 0.8% vs. 1.2%
• GBP Unemployment Rate 7.8%

Event Risk on Tap

• CAD Wholesale Sales
• USD Building Permits expected at 0.63M
• USD Housing Starts expected at 0.58M
• USD Import Prices expected at 0.9%
• USD Capacity Utilization Rate expected at 72.6%
• USD Industrial Production expected at 0.7%

Price Action

• USD/JPY above 90.00 targeting 90.50 as risk appetite rises
• AUD/USD takes out .9000 as risk rises
• GBP/USD tumbles to 1.5760 in wake of weak emplyment data
• EUR/USD steady at 1.3750 as recovery bounce holds

Risk currencies continued their recovery rally in Asia and early European trade but ran into wall of selling after UK unemployment data shocked to the downside indicating that economic growth in Great  Britain remains extremely weak. UK claimant count rose to 23.5K rather than contracting  by -14.6K as markets forecast.  The unemployment rate remained  steady at 7.8% but average earnings rose only 0.8% versus 1.2% expected – a record low pace for a third straight month.

The news suggests that labor conditions in the UK economy remain challenging and are likely to put a damper on growth for the foreseeable  future leaving  the BOE stationary for all of 2010 and perhaps beyond. Cable initially shrugged off the  dour report  with the unit staging a relief rally on the news that the BOE voted unanimously to pause  in its QE program. However, as we noted earlier, “UK monetary authorities are well aware of downside risks to the UK economy and any further deterioration in economic data is likely to revive the debate of  utilizing QE as a stimulus measure once again.  

In short although cable saw a knee jerk bounce off the BOE minutes, we believe that the sharply negative labor data outweighs any positive impact from the QE pause and the pair could come under further selling pressure as the day progresses especially if risk aversion flows return.”

Meanwhile the EUR/USD remained relatively steady at 1.3750 maintaining its recovery bounce as the Greece fiscal crisis problems began to dissipate from the headlines. The issue continues to dog the unit but the postponement of any bailout  package appears to have eased  markets concerns for the time being. On the economic front the only release on the docket was the EZ Trade Balance which printed better than expected at 7.0B versus 4.2B eyed. Export growth will remain key to the region going forward and although today’s data was positive, any dampening of demand out of China as the year progresses could prove to be very negative for the EZ economy as whole and  for euro in particular.

In North America today the focus will be on housing data which is expected to remain essentially unchanged from the month prior and on the FOMC Meeting notes due at 19:15 GMT. The FOMC release could put some pressure on risk appetite in the afternoon especially if  the minutes reveals any detailed discussion of exit strategy plans. Overall however, if the US economic data continues to surprise to the upside, it should provide strong support for equities and suggest a further rebound in risk FX as the economic recovery  story remains alive.

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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.