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Euro Awaits EcoFin

Last updated 9/16/2011 5:27 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• EU CA widens markedly
• All eyes on EconFin meetng
• Nikkei up 2.25% Europe off -0.24%
• Oil at $89.27/bbl
• Gold At 1779/oz.

Overnight Eco

• EU CA -12.9B vs. -5.6B

Event Risk on Tap

• USD Net Long-term TIC Flows (JUL)
• USD Total Net TIC Flows (JUL)
• USD U. of Michigan Confidence (SEP P)
• CAD International Securities Transactions (Canadian dollar) (JUL)

Price Action

• USD/JPY quiet neat 76.75
• AUD/USD remains in 1.3000-1.0350 zone
• GBP/USD tests 1.5750 support
• EUR/USD breaks below 1.3800 as sov debet concerns nag ahead of Eco Fin

With no other major economic data on the calendar attention will turn to the EcoFin meeting today which is being attended by US Treasury Secretary Tim Geithner. The EUR/USD was slightly lower in quiet Friday morning trade ahead today of the key EcoFin meeting as currency markets awaited fresh policy initiatives from European fiscal authorities regarding the ongoing credit crisis amongst the region’s periphery economies. The euro was pressured earlier in the session on fears that Moody’s which put Italy on a watch three months ago would in fact lower the country’s credit rating, but the agency has not announced anything so far. 

Market sentiment was also dented by comments from Deputy Managing Director of IMF Zhu Min who stated that  “EU Debt crisis was in a dangerous new phase.” Still expectations remain high that the EcoFin meeting will produce some bold new action perhaps following the model of US TARP program especially given the fact that Treasury Secretary is attending the meeting.

On the economic front the EU CA data missed its mark as the deficit widened to -12.9B versus -5.6B eyed The trade in goods reversed to a deficit of -3.5B euros from a surplus of 0.5B euros the month prior.  Meanwhile portfolio investment recorded a net outflow of -16B euros. Note this data was for July and did not yet account for the massive market volatility in August, which could result in even greater outflows in next month’s numbers. Overall the deficit in trade of goods and massive portfolio outflows suggest both a slowdown in economic activity and an increase in risk aversion going forward.

In North America the calendar only carries the TICS data and the U of Michigan report  due at 13:45 GMT.  Market expectations are for a small rebound in consumer sentiment data to 57.3 from 55.7 the month prior. The economic data however is unlikely to make much of an impact as attention will squarely focus on Poland where Mr. Geithner and the IMF will attend as guests.

As we wrote earlier, “There has been  speculation that EU policymakers may follow the US example and turn EFSF into a version of TARP providing further liquidity to the system. A move in that direction will likely be viewed positively by the market but may provide only a limited boost to the EUR/USD as sovereign debt problems continue to dog the pair with 1.3900-1.4000 region remaining formidable resistance for the unit.”

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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.