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Euro Hugs 1.3500 As Uncertainty Reigns

Last updated 9/27/2011 5:26 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Spain FM denies EFSF expansion to 2T sending EURUSD lower
• GFK Sentiment better than forecast
• Nikkei up 2.82% Europe up 2.93%
• Oil a $82/bbl
• Gold at $1663/oz.

Overnight Eco

• CHF UBS Consumption Indicator (AUG) 0.79 vs. 1.28
• EUR GFK German CC 5.2 vs. 5.1

Event Risk on Tap

• USD Consumer Confidence (SEP)
• USD Richmond Fed Manufacturing Index (SEP)

Price Action

• USD/JPY steady at 76.42
• AUD/USD capped at .9900
• GBP/USD hovers around 1.5550
• EUR/USD 1.3550 caps as doubts about EFSF expansion weigh

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The short covering rally in EUR/USD ran out of steam in early European trade today after Spain’s Economics Minister Elena Salgado said that plans to extend the EFSF fund to 2 Trillion euros were not on the table. Her comments dampened hopes that EZ fiscal officials would be able to create a European style TARP that could address the growing sovereign debt crisis in the region. Despite strong gains in equities in both Asia and Europe, the euro failed to follow through dropping back below the 1.3500 level as concerns mounted that political barriers would scuttle any financial solution  putting the  European monetary system at risk.

Of most immediate concern is the vote in Greek Parliament scheduled for later today regarding further austerity measures required by the troika of ECB EU and IMF in order to release the sixth tranche of bailout funds.  Some of the PASOK ruling party MPs have objected to the new property tax, but the bill is expected to pass. If it does not however, it will trigger yet another crisis as the Troika is unlikely to release the funds without this Parliamentary approval. The final decision from the Troika is expected to be made after the Ecofin meeting on October 3-4th.

On the economic front German consumer sentiment remained  at one year low but printed above the market forecast as consumers in Europe’s largest economy remained untroubled by the surrounding sovereign debt crisis. The GFK measure of consumer sentiment was 5.2 versus 5.1 eyed, the same reading as the month prior.  German's expectations of income continued to rise increasing to 35.1 points from 27.6 points in August signaling that the the labor markets remain string despite the recent slowdown in growth.  However, the forward looking economic expectations index slipped sharply to 4.8 points from 13.8 points in the period prior. Finally, the propensity to buy remained at a high level although its was off its best levels of the year.

As we noted earlier,”Overall the news on the consumer front was not nearly as dour as analyst’s expectations  given all of the recent the turmoil in European financial markets that put the very existence of the euro into question. Nevertheless GFK noted, that lack of a clear leadership on the issue is ‘having an impact on consumption and increasing anxiety.’”

Headlines from Europe  will continue to be the key driver of trade today as EUR/USD pivots around the 1.3500 level reflecting the market’s uncertainty regarding the  resolution of the sovereign debt issue. Risk appetite however remains supportive and if the news from Greece proves positive it may provide the trigger for further short covering as the day proceeds with bulls targeting the 1.3600 level in North American trade.

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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.