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Euro Recovers Off Lows But Remains Rangebound

Last updated 10/21/2011 5:41 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• IFO in line but focus remains on summit
• UK PSNB bit better at 11.4B vs. 12B eyed
• Nikkei ends -0.04% Europe up 0.70%
• Oil at $86/bbl
• Gold at $1621/oz.

Overnight Eco

• NZD Credit Card Spending (YoY) (SEP)
• CHF Real Estate Index Family Homes (3Q)
• EUR German IFO - Business Climate (OCT)
• EUR German IFO - Current Assessment (OCT)
• EUR German IFO - Expectations (OCT)
• GBP Public Sector Net Borrowing (Pounds) (SEP)
• GBP Nationwide Consumer Confidence (Sep)

Event Risk on Tap

• CAD Consumer Price Index (MoM) (SEP) expected at 0.1%
• CAD Consumer Price Index (YoY) (SEP)
• CAD Bank Canada Consumer Price Index Core (MoM) (SEP) expected at 0.3%
• CAD Bank Canada Consumer Price Index Core (YoY) (SEP)

Price Action

• USD/JPY quiet at 76.70
• AUD/USD recovers to 1.0250 as risk stabilizes
• GBP/USD runs back towards 1.5800 after better PSNB data
• EUR/USD IFO in line helps bring support at 1.3700 as it tries 1.3800 again

It’s been a lackluster night of trade with EUR/USD tracing  out a  range of 1.3700-1.3800 as Sunday’s EU summit has lost much of  its importance given the announcement by authorities that they will postpone the final decision until next Wednesday. The latest communique from Brussels indicates that Sunday will only be an intermediary meeting with next Wednesday now set as the final deadline for some sort of a comprehensive policy plan.

On the economic front the IFO survey of German business sentiment printed lower but broadly in line with headline number slipping to106.4 from 107.5 the month prior while current conditions declined to 116.7 from 117.9 and future expectations eased to 97.0 from 98.0. This was the fourth consecutive monthly decline in  the sentiment readings suggesting that German economy is clearly decelerating as pessimism over the European sovereign debt crisis is beginning to weigh on economic activity. Nevertheless the IFO data shows no sudden fall off in demand that would indicate a recession is imminent. 

IFO’s deputy department head Klaus Abberger suggested that the ECB  should cut rates to 1.0% in order prevent further contraction, but as we noted yesterday with price pressures in the region remaining elevated the EU monetary authorities may be forced to remain stationary unless the economic situation deteriorates rapidly. ECB Council member Ewald Nowotny noted that EU monetary officials discussed the prospect of lowering rates at last month’s meeting, but we continue to  doubt that ECB will take any sudden action given the political implications of transitioning to new leadership under Mario Draghi.

In UK the Public Sector Net Borrowing figure was a bit better than expected with data printing at 11.4B while the months prior results were revised downward to 10.9B GBP. Cable was initially unmoved by the numbers but rose late on a broad shot squeeze in risk flows that took the pair above 1.5800. The fiscal budget news suggests that UK authorities have stabilized the deficits, but absent strong organic growth that would increase tax revenues, the budget gap is likely to remain at these levels as austerity measures have reached their political limit.  

With no US data on the docket the North American session is likely to be driven by headline risk from Europe once again, although further dramatic news appears unlikely given the fact that officials have extended the timeline to negotiate a deal. Although there is some disappointment that the final decision has been delayed, the market continues to give the policymakers the benefit of the doubt and with global economic data relatively supportive risk flows appear to have the upper hand, but trading could quickly turn volatile if headlines suggest that policymakers are at a standstill and further progress is not possible.  

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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.