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Euro Drips Lower Into the Weekend

Last updated 1/30/2009 6:19 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Japan hits the worst recession since WW2 as factory output slumps -10%
• RBNZ Bollard more cuts to come
• US Bank bailout plan hits snags
• Equities mildly higher pre US open
• Oil at $41/bbl
• Gold strong above $900/oz.

Overnight Eco

• NZD Building Consents -6.0%
• AUD CB Leading Index -1.0% vs. -0.2% last
• JPY Manufacturing PMI 29.6
• JPY Household Spending collpases to -4.5% vs. -3.6%
• JPY Tokyo Core CPI 0.5% as expected
• JPY National Core CPI 0.2%
• JPY Unemployment Rate 4.1% vs. 4.1% eyed
• GBP GfK Consumer Confidence -37 vs, -35 last
• GBP Net Lending to Individuals jumps 2.2B vs. 1.3B forecast
• EUR CPI Flash Estimate colder at 1.1% vs. 1.4% forecast

Event Risk on Tap

• CAD GDP
• USD Advance GDP expecteed at -5.1%
• USD Employment Cost Index expected at -0.7%
• USD Chicago PMI expected at 34.0
• USD Revised UoM Consumer Sentiment expected at 61.8

Price Action

• USD/JPY at 8950 ignoring Jaoanese data
• AUD/USD below 6500 as risk aversion, rate cuts cut worries dominate
• GBP/USD performs best overall at 1.4300 as data proves supportive
• EUR/USD under pressure again as risk aversion flows drive it below 1.2900

As the weekend approached in Asian and European trade the EUR/USD continued to drip lower over concerns about the viability of the currency and growing consensus that ECB will have to take rates below 2% in order to combat the creeping recession in the EZ economy. Yesterday’s comments by George Soros continued to reverberate though the FX markets in overnight trade as EUR/USD dropped through  the 1.2900 handle reaching a low of 1.2835.

Mr. Soros stated that the currency may not “survive” unless the European Union pushes for a global plan to deal with toxic debt. The currency market now believes that the US system is far more flexible in dealing with the growing economic crisis  and is therefore giving the dollar the benefit of the doubt against the euro.  The European currency was also pushed lower on news that EZ CPI printed much colder that 1.4% forecast coming in at 1.1%. The news suggests that inflation is practically non-existent in the region and the typically hawkish ECB will have no economic argument for keeping rates at the present 2% level beyond March.

Meanwhile in Japan the economic news continued to depress as household spending shrank at a massive -4.6% rate while factory orders collapsed by nearly 10% indicating the worst slump in the country’s manufacturing sector since WW2. We noted earlier that ,” With domestic demand  essentially non-existent and global growth slowing markedly, Japanese officials have virtually no options left save for fiscal stimulus triage which has proven to be ineffective so far. The irony of an ever appreciating yen  in a environment of sharply contracting global demand is wreaking havoc with the   Japanese economy at the present time.”

Turning to North America the focus is likely to be on US GDP data which may actually surprise to the upside given the marked improvement in US Trade deficit data, as well as the progress of the Obama stimulus packages in the US Senate. The dollar continues to attract a bid as market now views the buck as not only a safe haven instrument but is  also convinced that US economy will outperform the EZ in the current global economic turmoil. If the news proves supportive on the economic front a test of 1.2800 before the day’s end could occur.

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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.