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Euro Struggles With 1.3000 Pound Holds 1.44000

Last updated 2/4/2009 5:44 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• UK PMI Data shows third postive surprise this week
• Equities mildly firmer in Asia and Europe
• US seeking to gurantee toxic asset values
• Oil holds $40/bbl
• Gold rallies back to $900/oz

Overnight Eco

• NZD Visitor Arrivals 9.6M against 10.2M expected
• AUD AIG Services Index bounces to 41.0 from 39.3 prior
• GBP Nationwide Consumer Confidence bleak at 40 vs. 45 called
• AUD Building Approvals -2.9% against 2.3% eyed
• AUD Retail Sales Trend improves to 3.8% from 1.4% forecast on governmnet spending
• NZD ANZ Commodity Prices decline continues to -4.3%
• EUR Final Services PMI worse at 42.2 against 42.5 expected
• GBP Services PMI 42.5 vs. 40.3 projected
• EUR Retail Sales better at 0.0% vs. -0.2% called
• GBP BRC Shop Price Index n/a

Event Risk on Tap

• USD Challenger Job Cuts
• USD ADP Non-Farm Employment Change expected at -520K
• USD ISM Non-Manufacturing PMI expected at 39.1

Price Action

• USD/JPY breaks 8900 but climbs back as range persists
• AUD/USD climbs above 6500 in early Asia but crashes after Aussie data shows further signs of slowdown
• GBP/USD holds bid well at 1.4400 as PMI Serives proves better than expected
• EUR/USD flushed to 1.2930 in early Europe but tries to staiblize at those levels

Another rambling night of trade in the currency market as the EUR/USD struggled with the 1.3000 handle after staging a reversal in North American session yesterday.  Better risk appetite and the growing political woes of the Obama administration helped fuel Tuesday's rally, but the unit could not hold its gains as dour economic data and steady EURGBP sell flows kept the downward pressure.

On the economic front the final EZ PMI Services printed worse than expected at 42.2 vs. 42.5 suggesting that the region is showing no signs of bottoming out just yet. Tonight's data only increases the pressure on ECB to lower rates sooner rather than later. Meanwhile EZ Retail Sales were marginally better than expected at 0.0% vs. -0.2%.

In UK the news was markedly better as UK PMI Services printed at 42.5 vs. 40.3 projected. As we wrote earlier,  “This was the third consecutive PMI reading this week that surprised to the upside lending more credence to the sterling bullish view that the worst of the UK contraction may be over. Despite   the positive headline numbers, the employment component of the release showed further deterioration indicating that labor markets have yet to find a bottom.  Nevertheless, the news should  confirm the expectations of 50bp cut from the BOE as risk of a more dramatic policy gesture appears to have passed.”

Heading into North American open the economic focus will rest squarely on the ADP report and ISM Non Manufacturing data.  Traders will want to see if the amount of US job losses has moderated somewhat and to that end the employment component of the ISM Services report may be a better guide than the ADP number. The dollar stumbled yesterday on the political woes of the Obama administration as Tom Daschle withdrew his nomination.

We have been arguing all week that the one factor that could trip up the greenback rally is a political failure to pass the stimulus legislation. To that end, Washington DC not Wall Street will likely drive currency trade in the next 24 hours as the credibility of the Obama administration is presented with its first real test.

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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.