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Euro Rebounds From Lows on Better Data, Positioning Skew

Last updated 1/9/2012 5:34 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Australian Retail Sales miss
• German Trade Balance much better helping to recover risk ahead Merkozy meeting
• Nikkei closed but Kospi off, Europe off -0.25%
• Oil at $101.73/bbl
• Gold at $1612/oz.

Overnight Eco

• AUD Retail Sales s.a. (MoM) (NOV) 0.0% vs. 0.4% eyed
• AUD HIA New Home Sales (MoM) (NOV) 6.8% vs. 5.5%
• AUD AIG Construction PMI (MoM) (DEC) 41 vs. 39.6
• CHF Unemployment Rate (DEC) 3.1% vs. 3.1%
• EUR German Trade Balance (euros) (NOV) 15.1B vs. 12.3B
• EUR German Industrial Production s.a. (MoM) (NOV) n/a

Event Risk on Tap

• USD Consumer Credit (NOV) expected at $7.0B
• CAD Building Permits (MoM) (NOV)

Price Action

• USD/JPY below 77.00
• AUD/USD recovers from overnight lows to trade back above 1.0200
• GBP/USD 1.5450 caps rally for now
• EUR/USD rallies off fresh lows towards 1.2800 ahead of Merkozy meeting

Risk rebounded from its lows set during early Asian session trade, boosted by better trade data from Europe, positive equity market flows and anticipation of the upcoming press conference from the first meeting of the year of German Chancellor Angela Merkel and French President Nicolas Sarkozy.  Earlier, EUR/USD tumbled to fresh 16 month lows at 1.2666 in opening Asian trade after a miss in Australian Retail Sales cast a negative pall over investor sentiment at the start of week’s dealing.

Australian Retail Sales printed at 0.0% versus 0.4% eyed producing the third straight month of disappointing results as consumer demand Down Under has clearly slowed. As we wrote earlier, “Some analysts have cautioned that Retail Sales figures may be understating the true strength of consumer demand in Australia given the fact that National accounts figures showed better figures throughout 2011. However, the latest reading clearly  points to deceleration in growth and is likely to spur further rate cut by the RBA in Q1 of this year.”

The Aussie tumbled more than half a cent in early Asian trade falling to a low of 1.0155 in the aftermath of the release, but the pair since rebounded as traded back to 1.0230 filling its opening gap as risk sentiment turn positive. We continue to believe the pair may be more vulnerable to downside moves, but for the time being risk flows continue to support the pair and it may press to 1.0300 if US equities extend their gains.

The EUR/USD meanwhile remains hobbled by the persistent credit concerns in the region but is also grossly oversold at the moment and is vulnerable to quick short covering rallies. The latest COT data shows that euro shorts has risen to -139K from -128K the period prior hitting fresh record. Such one sided positioning skews are difficult to maintain and the pair could see some recovery moves this week if economic data from the region shows some stabilization and the sovereign debt auctions go off without a hitch.

Earlier today, the IMF Chief Christine Lagarde echoed the optimism on the EZ stating that the region may be able to avoid recession in H1 of this year. The European economic data  proved supportive as well with Sentix investor sentiment improving to -21 from -24 while German Trade Balance surplus ballooned to 15.1B euros form 12.3B anticipated.

With little economic data on the docket in US all eyes will be on German Chancellor Angela Merkel and French President Nicolas Sarkozy when they hold their press conference at 12:30 GMT.   The two will focus on ways to stimulate growth in the region with Mr. Sarkozy particularly vulnerable as he trails in the polls only four months away from French election  in the wake of highest unemployment rates in France in 12 years. Although the markets do not anticipate any fresh policy initiatives if Ms. Merkel and Mr. Sarkozy  strike an optimistic note the EUR/USD could  push through the 1.2800 figure and beyond as the short squeeze becomes more intense. 

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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.