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Euro Holds 1.3550, Pound Hurt By Borrowing Data

Last updated 2/18/2010 5:01 AM ET (GMT -5) 4 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• BOJ leaves rate unchanged, no change on QE
• UK PSNB rises in January for the first time since records began
• Equities mixed as Asia slightly higher but Europe opens lower
• OIl at $76.40/bbl
• Gold moves towards $1100/oz. as dollar strengthens

Overnight Eco

• AUD NAB Quarterly Business Confidence 18 vs. 16
• CHF Trade Balance 2.42B vs. 1.36B but exports decline -3,2%
• CHF ZEW Economic Expectations n/a
• GBP Public Sector Net Borrowing 4.3B vs. 2.4B
• GBP Prelim M4 Money Supply 0.6%

Event Risk on Tap

• CAD CPI expected at 0.3%
• CAD Foreign Securities Purchases expected at 7.56B
• USD PPI expected at 0.8%
• USD Unemployment Claims expected at 445K
• USD Philly Fed Manufacturing Index expected at 17.2
• USD CB Leading Index expected at 0.6%

Price Action

• USD/JPY marks time at either side of 91.00
• AUD/USD bit lower to .8950 on dollar strength but holds bid relatively well
• GBP/USD weighed by negative comments by Barker as 1.5600 comes into view
• EUR/USD battle at 1.3550 ahead of North American trade

EUR/USD continued to trade cautiously on either side of 1.3550 after setting yet another fresh eight month low at 1.3540 in early European trade,  while cable was pressured by negative comments from BOE’s Barker who suggested that another quarter of negative  growth was a distinct possibility for the beleaguered UK economy. In an interview with an Irish newspaper “The Newsletter”, Kate Baker noted that the recovery in the UK economy will be “quite hesitant” although she did not think that country would experience a double dip recession.

Meanwhile UK Public sector Net borrowing rose by 4.3B versus forecasts of a decline of -2.4B recording the first borrowing in January since records began in 1993. The news sent cable through the 1.5600 level as concerns over the viability of financing UK fiscal deficits flared up once again. UK’s balance sheet and economic prospects are amongst the weakest in the G-20 universe and as we noted yesterday should continue o weigh on GBP/USD going forward.  The downside now targets the yearly low at 1.5535 and the key psychological level of 1.5500 as next points in the downtrend.

In Europe, the eco calendar was barren but the EUR/USD remained on the back foot all night long ahead of the North American session. As we noted earlier, “The  EUR/USD has repelled every effort to run the stops at 1.3500 level so far and given the large amount of option barriers at that figure the pair may hold support until the New York fix at 15:00 GMT today, However, if US econ news once again proves positive today support could finally give way. The tight correlation between EUR/USD and DJIA which dominated trade throughout 2009 has now totally broken down and any rally in US equities is likely to push the pair lower with a test of 1.3500 only a matter of time.”

Finally in Japan the BOJ concluded its monthly meeting and as expected left rates unchanged but made no further comment on possible extension of QE measures surprising the market somewhat while putting a mild bid underneath the yen. It seems  unlikely that BOJ would end its extraordinary liquidity measures given the rate of deflation in Japan and policymakers may have simply decided to defer any decision to extend QE to the next meeting in March. USD/JPY continues to benefit from the strong batch of recent US data having broken out above the 90.00 figure and should remain in an uptrend targeting 93.00 if US economic reports continue to surprise to the upside.

Today’s North American session brings a slew of data including PPI, weekly jobless claims, Philly Fed and LEI reports.  If the econ news proves supportive the dollar should continue its rally on relative growth flows as currency traders will try once again to test the key support levels in both euro and pound.

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Comments (4)

FXDragon

February 18, 2010 at 06:06 AM ET

How could Swiss trade balance improve if imports exceed export data?

Mo

February 18, 2010 at 07:27 AM ET

Hi Boris,

just one little typing mistake, i guess you meant the EUR/USD low of 1.3540 and not of 1.3440 in the article.

bschlossberg

February 18, 2010 at 01:14 PM ET

Yes thanks I corrected it

alexjbrandt

February 18, 2010 at 07:28 AM ET

Swiss trade balance +2.4B vs +1.3B in December

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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.