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Euro Capped at 1.3000 as All Eyes on US

Last updated 2/9/2009 5:10 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Nissan to cut 20K jobs
• Barclay's beats estimates projects strong start in 2009
• Treasury bank rescue plan to be revealed Tuesday
• Oil below $40/bbl
• Gold continues to hold $900/oz level $900 last

Overnight Eco

• JPY Core Machinery Orders -1.7% vs. -8.6%
• JPY Current Account 125.4B versus 320.0B
• JPY M2 Money Stock 1.9% vs. 1.8% forecast
• JPY Economy Watchers Sentiment better at 17.1 against 13.3
• EUR German Trade Balance 6.9B vs. 8.2B last
• EUR Sentix Investor Confidence -36.1

Event Risk on Tap

• CAD Housing Starts expected at 169K

Price Action

• USD/JPY drops throough 9100 as delay in Geithner plan blunts enthusiasm but bounces back in early Europe
• At 6700 as risk appetite improves into European trade
• GBP/USD holds 1.4800 in quiet trade
• EUR/USD 1.3000 once again ceiling early 1.2900 key pivot for now

EUR/USD was essentially unchanged in morning European trade after an early bout of risk appetite in Asia quickly faded on announcement that Secretary Treasury Geithner’s plan to rescue the financial system would not be revealed until Tuesday. The pair managed to climb within a few points on the 1.3000 level in Sydney and very early Tokyo on some follow through from Friday’s rally in the DJIA, but the Japanese stocks could not hold their gains in the wake of the announcement by Nissan that it will cut 20,000 jobs as the result of weakening global demand.  

The Japanese economy continues to be a basket case as strengthening yen and declining exports squeeze margins ever tighter, leaving Japanese businesses in a no-win position. Indeed, the country’s Current Account surplus shrunk once again to 125B from 320B forecast as the Trade Balance recorded yet another deficit month. Some analysts now expect the Japanese Current Account to turn negative by 2014 further eradicating the country’s balance sheet position.

Japan has never had a need for external capital because of high domestic savings rates and its mercantilist economic policies. However, given the rapid erosion of Current Account surplus it will be interesting to see how the country will cope with  its upcoming financing needs should the vast pool of domestic resources evaporate over the next several years.

Meanwhile in Europe, the German Trade surplus also deteriorated printing at 6.9B versus 8.2B forecast. as export demand  declined nearly -4%. Given the fact that Germany is the engine of Europe and exports are the key driver of the German economy, tonight’s dour data offers little solace to euro longs. Nevertheless the pair essentially ignored the news pivoting around 1.2900 most of the night.

The currency markets appear to be in a stall awaiting the resolution of  the Obama stimulus package in the Senate and the details of the Geithner bank rescue plan. For the time being risk appetite remains relatively healthy as investors bet on the plan’s success to revive the economy. Even the EUR/USD has managed to correlate with risk assumption once again as markets presume that a pick in demand from US will provide stimulus to the rest of the world. However, the “hope” rally may be short lived and to that end the euro remains vulnerable to further risk aversion sell offs if markets don't like what they hear.

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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.