All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Euro Blows Past 1.4700 As Ifo Sinks to All Time Lows

Last updated 12/18/2008 6:59 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Euro blows through the stops at 1.4500 to take out 1.4700
• IFO hits an all time low as manufacturers face deteriorating conditions
• UK Retail sales shock to the upside
• Japanese Fin Min. Nakagawa – ready to take necessary steps to defend USDJPY
• Chrysler to shut all manufacturing plants indefinitely
• Oil lingers in the low $40s
• Gold bid at $873/oz

Overnight Eco

• NZD NBNZ Business Confidence better -35 vs. -43
• CHF Trade Balance 2.15B vs. 1.70 forecast
• CHF Retail Sales 2.9% vs. 1.9% better
• EUR German Ifo Business Climate 82.5 vs. 84.0 called
• GBP Retail Sales an upside surprise at 0.3% vs. -0.6% called
• GBP Public Sector Net Borrowing 16B more than 13.5B forecast
• EUR Trade Balance

Event Risk on Tap

• CAD Core Retail Sales -0.9%
• CAD Foreign Securities Purchases -5.2B
• CAD Retail Sales -1.0%
• CAD Leading Index -0.4%
• USD Unemployment Claims 558K
• USD Philly Fed Manufacturing Index expected at -40.0
• USD CB Leading Index expected at -0.5%

Price Action

• USD/JPY spikes to 89.40 but comes back 88.20 in crazy liquidity starved session as carry flows dominate
• AUD/USD takes out 7100 handle following euro higher
• GBP/USD retail sales better but no go past 1.5500 as EURGBP skyrockets to 9500
• EUR/USD blows through stops at 1.4500 and squeezes all the way to 1.4700 before hitting offers

In a liquidity starved session, the EUR/USD skyrocketed past the 1.4700 barrier in early European trade as momentum players ignored the worst IFO reading since 1982 and sent the unit flying after it tripped stops at the 1.4500 barrier. The breath taking ascent took place against the background of deteriorating economic conditions as the mantra of the currency market continues to be - yield, yield, yield.

The IFO survey printed at 82.6 versus expectations of 84.0 reading hitting a record low. The report showed that exporters and capital goods manufacturers continue to suffer in the current global economic climate. 1 in 7 German jobs depends on the automotive sector which is facing the worst contraction in demand since the Great Depression. It is difficult to imagine how such dour data will not translate into significant reductions in employment in EZ largest economy. Yet as of now German employment has held relatively steady and has been the primary reason for ECB’s reluctance to ease monetary policy more aggressively. Nevertheless, if the labor situation begins to deteriorate significantly in Q1 of 2009, the ECB will have no choice but to align its interest rates with the rest of G-4.

For the time being however, the euro is fueled a near manic demand for yield, momentum trading and an optimistic belief that ECB will keep rates at 2% for most of   2009. This heady combination of factors along with dire absence of liquidity, as many market players have already closed up shop for the year, explains the remarkable price action over  the past few days. Although we’ve been bullish euros since the start of the week, we anticipated a move to 1.4500  tops. Tonight’s action as usual proves that there is no such thing as moderation in the currency market and opens up the possibility of a run to 1.5000 before the year end.

In North American session today, the focus will once again turn to weekly jobless claims and yet another horrid greater than 550K number could push USD/JPY below the 8800 figure once again. It will be interesting to see if US traders will decide to push the EUR/USD higher to test the overnight highs or whether profit taking will reverse tonight’s gains. Given the lack of fundamental support, the later may be the more likely the case. In either scenario volatility will continue to reign supreme as liquidity remains at premium. 

FX Upcoming

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

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.