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Euro Recovers as Credit Concerns Subside, Eco Data Beats

Last updated 11/17/2011 9:24 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Spanish Auctions near 7% but French below 3%
• US, UK data beats helping to fuel risk to upside
• Nikkei up 0.195 Euope off 0.97%
• Oil at $101.00/bbl
• Gold at $1746/oz.

Overnight Eco

• CHF ZEW Survey (Expectations) (NOV)
• GBP Retail Sales (MoM) (OCT) 0.6% vs. 0.25
• GBP Retail Sales w/Auto Fuel (MoM) (OCT) 0.9% vs. -0.1%

Event Risk on Tap

• USD Housing Starts (OCT) expected at 610K
• USD Building Permits (OCT) expected at 605K
• USD Initial Jobless Claims (NOV 11)
• USD Continuing Claims (NOV 4)
• USD Philadelphia Fed. (NOV) expected at 3

Price Action

• USD/JPY hovers near 77.00
• AUD/USD holds support at 1.000 and rallies above 1.0050
• GBP/USD better Retail Sales prop move to 1.5770
• EUR/USD back above 1.3500 after French auctions are relatively well bid

Risk FX rallied into early North American trade boosted by relatively uneventful French auction and better than expected data out of US and UK as focus shifted from the credit crisis in Europe to growth prospects in the US. After falling to 1.3422 in early Asian session trade the EUR/USd recovered to take out the 1.3500 figure ahead of the North American open.

With no meaningful economic data on the European calendar market’s attention was fixed squarely on the sovereign bond auctions in Spain and France. The Spanish bond auction resulted in an average yield of 6.9% - dangerously close to the 7% mark and still much too onerous for the Spanish Treasury to service for any considerable period of time.

The French auction went off a bit however, with the 5 year bond yielding 2.8% - higher than the 2.5% originally offered but still under the key 3% level that some shorts had anticipated. The news brought a measure of calm to the market and with ECB buying peripheral debt in the secondary market risk aversion flows ceased for the moment, providing a measure of relief to high beta currencies.

In UK the Retail Sales number printed markedly better than anticipated rising 0.9% versus -0.2% forecast. According to the ONS sales volumes were boosted by early pre-Christmas promotions and discounting in the food sector, where supermarkets are competing fiercely on pricing. Although mildly positive the news suggests that retailers may have borrowed some consumer demand forward which could lead to a more muted Christmas shopping season. Nevertheless, this was the second economic upside surprise from UK this week indicating that so far the island economy is not seeing any spillover effects from the credit crisis on the Continent.  Cable rose to 1.5800 in early North American dealing and could extend the rally if risk flows prove supportive for rest of the day.

In North America today the further improvement in weekly jobless claims which dropped to 388K from 390K eyed, have provided a early lift to risk currencies with AUD/USD rising to 1.0200 while EUR/USD has broken above the 1.3500 level. All eyes will now turn to the Philly Fed number due at 15:00 GMT with markets anticipating 9.0 versus 8.7 the period prior. With Empire Manufacturing and Industrial Production data both beating forecast this week, chances are strong that the Philly Fed data could surprise to the upside as well helping to fuel the recovery in risk as EUR/USD eyes 1.3550 level on further short covering.

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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.