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Euro Rebounds But Data Tempers Rally

Last updated 1/22/2009 4:08 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Chinese growth lower than expeceted at 6.8% in Q4
• Japanese Trade balance negative once again
• BoJ keeps rates at 0.1%
• Oil at $38.59/bbl below 40 once again
• Gold better bid at $860/oz

Overnight Eco

• NZD Business NZ Manufacturing Index 42,5 against 35.2 last
• JPY Trade Balance -0.15T vs. -0.33T forecast
• AUD MI Inflation Expectations 2.7% vs. 2.5%
• JPY Rate Decision 0.1% no change
• EUR French Consumer Spending -0.9% vs. -0.2% expected
• CHF ZEW Economic Expectations n/a
• EUR Industrial New Orders n/a
• GBP CBI Industrial Order Expectations n/a

Event Risk on Tap

• CAD Retail Sales
• CAD Leading Index
• USD Building Permits expected at 0.62M
• USD Housing Starts expected at 0.61M
• USD Unemployment Claims
• USD House Price Index expected at -1.2%

Price Action

• USD/JPY rebounds off yearly lows to 8900 handle after Japanese offcials warn
• AUD/USD runs to 6600 as risk returns to equity markets
• GBP/USD quiet in 1.3800's consolidating
• EUR/USD runs to 1.3000 on short covering but data tempers rally

The EUR/USD ran to 1.3000 in early European trade today spurred by a major short squeeze in the Asian session as risk appetite returned to the currency market. However the pairs gains were tempered by a very weak French consumer spending report which suggested that growth in the region is likely to contract more severely than initially forecast.  

News that CEOs of  BoA and JPM both bought the stock of their own companies as a sign of confidence in the future, spurred a rally in Asian equity markets today propelling the EUR/USD higher. The pair rose to 1.3089 before trailing off on some profit taking. However, the release of woeful French consumer spending data which printed at -0.9% vs. -0.2% forecast capped the rally for the time being and the pair consolidated around the 1.3000 level for most of the early morning trade.  

As we noted earlier, “The news bodes badly for the rest of the Euro-zone as France and along with Germany remains the primary engine of growth for the rest of the region.  Not even the prospect of lower food and energy prices revived the spirits of French consumers who continue to conserve their cashflow in the face of escalating job losses that threaten their security.  Therefore Q1 of 2009 is shaping up to be especially challenging to French retailers and is likely to result in greater contraction in GDP than currently forecast.”    

With only a smattering of housing data and unemployment claims on the calendar today, the North American session does not carry much meaningful event risk. The flow is likely to be dominated by risk aversion/risk assumption themes and equity prices will dictate the EUR/USD direction. For the time being the pair is being lifted by improved risk appetite and that dynamic is likely to carry it to 1.3100 as the day develops.

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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.