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Euro Holds 1.3500 As Credit Markets Calm Down

Last updated 11/18/2011 6:04 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Euro stabilizes above 1.3500 as credit markets steady
• PPI hotter on energy costs, Draghi offers nothing new in speech
• Nikkei off -1.23% Europe up 0.09%
• Oil at $99/bbl
• Gold up 10 to $1730/oz.

Overnight Eco

• EUR German Producer Prices (MoM) (OCT) 0.2% vs. 0.1%

Event Risk on Tap

• USD Leading Indicators (OCT) expected at 0.2%
• CAD Consumer Price Index (MoM) (OCT)
• CAD Bank Canada Consumer Price Index Core (MoM) (OCT)
• CAD Leading Indicators (MoM) (OCT)

Price Action

• USD/JPY drifts further below 77.00 as 76.65 in view
• AUD/USD recovers the 1.00 handle as risk rallies
• GBP/USD trades to 1.5840 on better risk tone
• EUR/USD rallies to 1.3550 as credit stabilizes

The EUR/USD continued to consolidate around the 1.3500 level as EZ credit markets stabilized with the yield on the benchmark 10 year Italian bond remaining steady at 6.81%. The ECB was reportedly buying Spanish and Italian debt at the start of European trade to help support the market, but the central banks participation remains haphazard at best providing little momentum to the market.

In speech in Frankfurt today ECB chief Mario Draghi reaffirmed the central aversion to becoming the primary agent of support for the region by asking for speedier implementation of fiscal initiatives including the expansion of EFSF. It is clear that the ECB is still reluctant to move away from its mission of pure monetary policy and its mandate of price stability, but the fact remains that presently it is the only pan-European institution capable of action.

Meanwhile the economic situation in Italy continues to deteriorate as Industrial Orders fell by -8.3% versus 6.0% eyed as domestic demand collapsed. In Germany the PPI data was slightly hotter than expected rising 0.2% versus 0.1% forecast. The gains were primarily driven by the rise in energy costs, but as we noted earlier, “Overall, inflation pressures on the wholesale level in the Eurozone’s largest economy remain relatively contained but at elevated levels although if energy prices continue their climb there is a serious danger of consumer inflation rising well above the ECB’s 2% target as producers are forced to pass on the increases. That dynamic could complicate matters further in the Eurozone constraining the ECB from acting aggressively to monetize the region’s peripheral debt as it is forced to adhere to its mandate of price stability.” 

In North America today the calendar is very quiet as well with on the LEI data on the docket. Markets are anticipating a return to a positive reading of 0.2% versus -0.1% the month prior. With both Dudley and Fisher talking today, rhetoric rather than data may be the key driver of trade in North American dealing. The EUR/USD remains very sticky at the 1.3550 level as skepticism about any solution to the EZ crisis remains very high, but we may be entering a period of “credit crisis fatigue” and if the short can’t push the pair below the 1.3450 level for much longer, the unit ripe for a short covering rally as late sellers are squeezed out of their positions. If equities prove supportive, the pair could target 1.3600 level as the day proceeds.

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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.