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Euro Dragged Lower as Unemployment Rolls Rise

Last updated 1/29/2009 5:28 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• House passes Obama fiscal stimulus package
• German Unemployment rises by nearly twice the estimates
• Japanese corporates pare down 2009 demand
• Oil slides below $42/bbl
• Gold at $880/oz coming off further from $900.oz level

Overnight Eco

• NZD Interest Rate Decision down to 3.50% a full 150bp cut
• NZD Trade Balance -347M vs. -100M projected
• JPY Retail Sales -2.7% vs. -1.6%
• GBP Nationwide HPI bit better at -1.3% vs. -1.8%
• EUR German Unemployment Change 7.3% vs 7.6% forecast
• EUR M3 Money Supply 5.8% vs. 6.5% eyed
• EUR Consumer Confidence -34 as expected

Event Risk on Tap

• CAD RMPI
• CAD IPPI
• USD Durable Goods Orders expected at -1.7%
• USD Unemployment Claims expected at 580K
• USD New Home Sales expected at 410K

Price Action

• USD/JPY abover 9000 on dollar strength post FOMC
• AUD/USD trades to 6550 as dollar gains accross the board and RBNZ cut weughs
• GBP/USD holds up better on relative basis but 1.4100 under threat
• EUR/USD falls hard all night targeting 1.3000 as eco data weighs

The EUR/USD continued its post FOMC tumble all night long in Asian and early European trade as the worst German unemployment data in four years and dovish comments by ECB chief Jean Claude Trichet  pressed the pair ever closer to the 1.3000 level. German unemployment rose a shocking 56K against expectations of a 30K, nearly threefold greater than the month prior figure of 18K.

As we noted earlier, “This was the second consecutive month of increase in unemployment rolls  suggesting  that  the economic contraction in Eurozone’s largest economy is  beginning to have a direct  impact on the labor market. The rapid pace of deterioration in labor demand  bodes badly for future economic  growth in the region as consumer demand is sure to suffer further. Indeed German Retail PMI numbers which printed right after the labor data confirmed that demand has deteriorated coming in a 41.7 against 42.3 reading the month prior. The news leads us to conclude that ECB will have to lower rates below the 2% mark at its meeting in March as policymakers desperately try to ease credit conditions to stimulate growth. “

No sooner had we written those words then Mr. Tricher stated that ECB was not excluding the possibility of cutting rates below 2%, sending the EUR/USD tumbling 50 points in 5 minutes. Despite the dour news however, the pair appears to have strong support near the psychologically critical 1.3000 level and so far has resisted any attempts to break it to the downside.

Nevertheless as the day progresses the push lower may resume especially if risk appetite begins to wane once more. Today’s North American session  has US Durable Goods and weekly jobless claims on the calendar with the market anticipating further declines.  If equities begin to wobble the EUR/USD could resume its downward path especially in light of the fact that market participants are beginning to realize that yield may disappear from the G-11 FX market altogether as we move forward  towards global ZIRP in 2009. Yesterday’s larger than expected 150bp cut by the RBNZ – one of the few remaining “high yielders” amongst the advanced industrialized nations served as a stark reminder that yields are inexorably moving lower towards the 0% target as recession grips the globe.

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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.