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Top Stories

• IFO's Sinn further austerity in Greece could push it to civil war
• EZ Sentix survey declines to 7.6 from 8.2 last
• Nikkei up 2%, Europe up slightly 0.25% on open
• OIl steady at $74.30/bbl
• Gold holds at $1250/oz.

Overnight Eco

• AUD ANZ Job Advertisements m/m 2.6% vs. 1.6%
• AUD MI Inflation Gauge m/m 0.2% vs. 0.1%
• EUR Sentix Investor Confidence 7.6 vs. 8.2

Event Risk on Tap

Price Action

• USD/JPY trickles back towards 84.00 as market remains sceptical fo bounce
• AUD/USD sell off in eearly Europe takes it to .9155
• GBP/USD pressured alll night on EUR/GBP buying as 1.5400 gives way
• EUR/USD rally ot 1.2900 can't hold but remains steady

With US on holiday until tomorrow, currency markets remained predictably quiet with cable providing the only volatility of the night as the unit slipped below 1.5400 on continued EUR/GBP strength. The euro held its gains in post NFP trade but could not break through the 1.2900 level as markets remained concerned about funding problems in the peripheral EU economies.

An article in FT noted that EU peripheral countries may need to raise  as much 80 Billion euros this month in order to shore up their budgets, while IFO’s Sinn stated that if  Greece were to enact any additional austerity measures, social unrest could lead to civil war in that country in the foreseeable  future.  The renewed fears about the stability of EZ peripheral economies widened out the Germany/Peripherals sovereign debt spreads at the start of the week and capped the rally in the euro at 1.2900.

The news on the economic front also weighed on the unit with Sentix investor survey falling to 7.6 from 8.2 the month prior (revised downward form the initial reading of 8.5) On a bright note the decline was only evident in the current assessment component which eased off 2 year highs of 16.5 to drop to 15. Future expectations increased slightly by 0.25 to 5.0.  Still, the survey indicates that investors remain anxious about the uneven distribution of growth in the EZ economy and until the market is convinced that the sovereign debt funding issues have been addressed any upward progress in the euro is likely to be limited.

Cable meanwhile performed even worse than the euro with the unit tumbling below 1.5400 in early European trade as EUR/GBP finally broke above the .8350 level hitting a high of .8379.  The near 100 point drop in sterling was attributed to a variety of factors including repatriation flows and a EUR/GBP& nbsp; fix related to an agricultural payment, but we remain convinced that the weakness in cable is primarily due to deteriorating fundamentals. As we noted last week, “The UK economy remains very vulnerable to the triple threat of declining house asset prices, weaker capital markets and the onset of fiscal austerity measures as we enter the fall season.”

With all US capital markets closed for Labor Day holiday today, the price action in North American session is likely to grind  to halt as the day progresses. Friday’s NFP data provided a modicum of relief by suggesting that US was in no imminent danger of   falling into a double dip recession, but the weaker that expected ISM  Non Manufacturing results tempered some of the enthusiasm  and for now the market remains uncertain as to the sustainability of the global recovery. This week the economic calendar carries primarily secondary data and trading may remain in consolidative mode as problems on both sides of the Atlantic  keep the EUR/USD in an uneasy state of  equilibrium.     

FX Upcoming

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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.