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Euro Whipsaws While Cable Gets No Lift From Retail Sales

Last updated 10/20/2011 5:20 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Lack of clear deal hobbles risk rally in FX
• UK Retail Sales mixed German PPI hotter
• Nikkei off -1.04% Europe of -1.31%
• Oil at $85.60/bbl
• Gold at $1625/oz.

Overnight Eco

• CHF Trade Balance (Swiss franc) (SEP) 1.85B vs. 1.37B
• EUR German Producer Prices (MoM) (SEP) 0.3% vs. 0.2%
• GBP Retail Sales (YoY) (SEP) 0.6% vs. 0.7%
• GBP Retail Sales (MoM) (SEP) 0.6% vs. 0.0%

Event Risk on Tap

• USD Initial Jobless Claims (OCT 14) expected at 408K
• USD Continuing Claims (OCT 8)
• USD Leading Indicators (SEP) expected at 0.2%
• USD Philadelphia Fed. (OCT) expected at -8.7
• USD Existing Home Sales Change (SEP) expected at 4.95M
• USD Existing Home Sales (MoM) (SEP) expected at -2.6%

Price Action

• USD/JPY drifts to 76.70
• AUD/USD recovers 1.0200 in Europe on better risk bid
• GBP/USD UK Retail sale fail to ignite a rally as pair hovers near 1.5700
• EUR/USD recovers to 1.3740 after selloff into 1.3680's

Another whipsaw night of trade in the currency market as risk FX sold off in Asia on lack of any clear details ahead of the EU summit this weekend, only to find a bid in  early Europe as bargain hunting kicked in. Reports that officials are having a difficult time arriving at a consensus weighed on risk appetite in Asian trade with stocks selling off across the board   as Nikkei dropped by 1.03% while Heng Seng lost 2.76%.

Among a series of issues that continue to plague the market are statements by German Chancellor Angela Merkel that the summit may not provide a conclusive resolution to the region’s credit problems and an announcement by lawyers in EU that suggests the use of EFSF to provide direct guarantees of bonds may be a violation of the union’s rules.

Yet despite the obstacles in place, markets continue to hold out hope that some sort of a comprehensive deal can be reached this week-end and EUR/USD remains in a general state of equilibrium trading in a wide 1.3650-1.3850 range ahead of the event. Trading is being driven almost exclusively by headline risk emanating from Brussels and price action could become volatile as we approach the week-end especially if rumors and leaks begin to proliferate.

In UK September Retail Sales data beat consensus printing at 0.6% vs. 0.0% eyed but the news failed to ignite a rally in sterling as traders focused on the downward revisions in the month of August. Quarterly data which tends to be a better barometer of trend showed that consumer demand remained tepid with volumes in Q3 -0.2% weaker than in Q2 and -0.1% than in the same period in 2010. Still the latest reading does show a modicum of improvement in demand despite the fact that Britons are facing the double challenge of high inflation and steepest unemployment level in 17 years. Cable consolidated at 1.5700 level but could make another run at 1.5800 as the day progresses if risk flows improve.

Although focus remains squarely on Europe, today US economic calendar does carry a few key releases. The market will get a glimpse of jobless claims, Existing Homes and Philly Fed data.  If the jobless numbers dip below the 400K level and Existing homes surprise to the upside reinforcing the bounce in yesterday’s housing starts data, equities could catch a bid in early North American trade providing further momentum to risk FX with EUR/USD once again targeting the 1.3800 level. If on the other hand the news disappoints and market gets no further updates from Brussels, the risk aversion selloff that started in Asia could resume with force and EUR/USD could tumble to 1.3600 as the day progresses.

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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.