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EUR/USD Under assault but Holds 1.3450 in Early European Trade

Last updated 11/21/2011 5:21 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Euro falls to 1.3450 on real money sales at start of the week
• EU CA better
• Nikkei off -0.32% Europe off -2.48%
• Oil at $96/bbl
• Gold at $1716/oz.

Overnight Eco

• JPY Merchandise Trade Balance Total (Oct) -0.46T vs. -0.20T
• EUR CA 0.5B vs. -3.2B

Event Risk on Tap

• USD Existing Home Sales (MoM) (Oct)

Price Action

• USD/JPY below 77.00 at 76.80 last
• AUD/USD slips to .9900 on risk aversion seloff
• GBP/USD weakens in risk takes to 1.5700
• EUR/USD real money sales push it to a test of 1.3450

Risk FX was under pressure again at the start of trading for holiday shortened week with EUR/USD slipping to test support at 1.3450 level while AUD/USD tumbled to .9900. Euro area credit spreads were under wider once more with French bonds trading 170bp premium to German bunds as concerns over EU funding continued to dominate trade.

There were no particular news drivers for the decline which was precipitated by selling from real money accounts at the start of European trade. However, comments by EU Economic and Monetary Affairs Commissioner Olli Rehn added to the turmoil in the markets. Mr. Rehn stated that the slowdown in growth will likely exacerbate the budget deficit problems in the  in region as tax revenue could decline in the first half of 2012. Mr. Rhen’s comments served aggravate an already nervous market and sent EUR/USD through the 1.3450 level in early European dealing.      

The markets  were also concerned with the latest reports from Greece where the head of the country’s privatization fund noted that the sales of 9.3B of state assets might be an unrealistic target indicating that  Greece may  miss its deficit reduction goals yet again.  Prime Minister Papademos will head to Brussels to try to obtain the latest 8 Billion euro rescue package from the EU, but that task may prove daunting given the fact that the leader of the opposition has refused to sign a written pledge to enact the reforms.

On the economic front data from the region  was mildly positive with EU Current account surprising to the upside as it printed at 0.5B euro versus -3.2B eyed.  This was the first time in eight months that the Current account has registered a surplus suggesting that despite the problems in the credit markets, other measures of EZ balance sheet strength remain relatively healthy.  

In North America today, New Home sales is the only data on the docket with the market looking as a decline to 4.82M from 4.91M the month prior. Despite near record low interest rates the US housing market remain in doldrums as it bounces along the bottom below the 5M annual run rate. With no major economic news on the calendar we may see a choppy low volume session in Us trade today with currency traders keeping a keen eye on the 1,3420 level which represents the near term low for the pair. If EUR/USD breaches that level it could open the way for a test of the 1.3200 over the near term horizon as credit woes continue to dog the pair. On the other hand if 1.3450 holds yet again it could provide a base for a more sustained relief rally as the week 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.