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Euro's Turn To Swan Dive - Yearly Low Set

Last updated 3/2/2010 5:09 AM ET (GMT -5) 2 Comments

Overnight Eco

AUD Building Approvals -7.0% vs. 0.7%
AUD Retail Sales 1.2% vs. 0.8% eyed
AUD RBA Rate Statement 4.0%
JPY Household Spending 1.7% vs. 2.6%
JPY Unemployment Rate 4.9% vs. 5.1%
JPY Monetary Base 2.2% vs. 4.8%
CHF GDP 0.7%
EUR CPI Flash Estimate 0.9% vs. 1.0%
EUR PPI 0.7%
GBP PMI Construction 48.5 vs. 48.9

Event Risk on Tap

CAD BOC Rate Decision expected at 0.25%
USD Total Vehicle Sales expected at 10.6M

Price Action

USD/JPY in very tight 89.15-89.40 range
AUD/USD finally breaks above .9000 in early Europe after RBA hike
GBP/USD election woes continue to haunt but 1.4900 holds for now
EUR/USD focus back on Greece as 1.3500 looks vulnerable

Risk FX remained under pressure with the euro rather than the pound taking the brunt of selling on the second trading session of the week while the Aussie held it s own in the wake of an RBA rate hike. The Reserve Bank of Australia resumed it rate tightening policy elevating its benchmark rate to 4.00% - the highest in the G-20 universe, but the cautious tone of the post announcement statement by Governor Glenn Stevens tempered market enthusiasm for the currency and Aussie remained below the .9000 level for most of the European morning trade.

Although Governor Stevens expressed confidence in the Australian economy, he also stated that, ”Credit conditions remain difficult in some major countries as banks continue to face loan losses associated with the period of economic weakness. Concerns regarding some sovereigns remain elevated.” We wrote yesterday that RBA’s monetary policy stance will be guided more by the lackluster global macro economic conditions rather than the relatively impressive performance of the Australian economy and continue to believe that any material slowdown in China will put halt on any future RBA rate hike.

Nevertheless, Australia remains the best performing economy in G-20 and the Aussie still represents the best bet on risk in the currency market. Despite its lack of response to the latest RBA rate hike, the AUD/USD has held up well in comparison to euro or sterling and should continue to outperform the other high beta FX pairs for the foreseeable future.

Meanwhile the euro saw a wave of stop hunting in mid morning trade setting a new yearly low at 1.3433 despite news out of Athens that the Greek government stands ready to enact further austerity measures of 5 Billion euros in an attempt to close its budget gap. Market sentiment however remains extraordinarily negative as consensus builds that even if the region survives the latest fiscal crisis, EZ interest rates will remain low for the foreseeable future and the ECB will lag the Fed by a wide margin in any move towards tightening.

In UK the pound found some support at the 1.4900 level after a fresh spate of polling data suggested that Conservatives are once expanding their lead in the wake of a speech by their leader David Cameron this weekend. On the econ front the UK PMI Construction release printed a tad weaker than forecast at 48.5 vs. 48.9. but markets ignored the news and rallied sterling towards 1.4950 in the aftermath of the release. Cable is now trading on sovereign risk dynamics rather than micro economic data and to that end any piece of polling that suggests a positive resolution to the UK election will likely help the currency in the near term.

In North America today the focus will be on Canada where the BOC is expected to keep rates at 25bp but perhaps signal a more neutral monetary policy stance in light of strong Canadian economic data that showed Q4 GDP rising to 5%. Canadian real estate markets have seen a massive boom as BOC has maintained rates at record low levels and BOC monetary authorities must act soon in order to prevent a bubble in the housing sector. The market has been anticipating a more hawkish statement today, with loonie rallying against the dollar all night long.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
CAD	14:00	9:00	CAD BOC Rate Decision	0.25%	0.25%
USD			USD Total Vehicle Sales	10.6M	10.8M

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Comments (2)

margaret

March 02, 2010 at 02:53 PM ET

Hey can anyone tell me please whether the eur/usd has formed or is ready to form a triple bottom. I'm not sure whether to count the end of last week as a bottom, in which case the triple is complete. If it has does it calculate that the pair is likely to soar to maybe $1.39-$1.40. If it has'nt is it likely to move back to 1.37 then back up. Help/opinions would be great. THanks

margaret

March 02, 2010 at 02:55 PM ET

Me again - sorry my last post had a typo should be $1.347 for the move back eur/usd

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's Turn To Swan Dive - Yearly Low Set

Boris Schlossberg

Director of Currency Research, GFT