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Euro Runs Into Profit Taking Ahead of 1.3000

Last updated 1/20/2012 5:14 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Euro runs into profit taking ahead of 1.30 as all eyes on PSI
• UK Retail Sales in line
• Nikkei up 1.47% Europe off 0.13%
• Oil below $100/bbl
• Gold at $1650/oz.

Overnight Eco

• EUR German Producer Prices (MoM) (DEC) -0.4% vs. 0.1%
• GBP Retail Sales (MoM) (DEC) 0.6% vs 0.6%
• GBP Retail Sales w/Auto Fuel (MoM) (DEC) 0.6%

Event Risk on Tap

• USD Existing Home Sales (MoM) (DEC) expected at 3.7%
• CAD Consumer Price Index (MoM) (DEC)
• CAD Bank Canada Consumer Price Index Core (MoM) (DEC)
• CAD Wholesale Sales (MoM) (NOV)

Price Action

• USD/JPY remains above 77.00
• AUD/USD range trades 1.0400-1.0425
• GBP/USD inline Retail sales offer no help as it falls back to 1.5450
• EUR/USD 1.300 rejected as 1.2900 taken out

The shorts got the upper hand in early European trade today after EUR/USD failed to take out the key 1.3000 barrier in Asian session dealing. The pair had rallied to a high of 1.2986 on the close of Asia but lackluster PMI data out of China and continuing uncertainty over the PSI talks in Athens prompted a spate of profit taking in morning European trade that took the pair back below the 1.2900 figure.

The HSBC Chinese Manufacturing PMI printed at 48.8 barely rising from last month’s reading of 48.7. After bottoming out in November of last year Chinese manufacturing activity has stabilized but below the key 50 boom/bust level indicating that growth in the sector will be modest at best in H1 of 2012. The news provided no support for risk and offered an opportunity for some profit  taking after a very string run this week.

In Athens, the  PSI talks proceeded for third consecutive day and although Finance Minister Evangelos Venizelos stated that the discussions have been “long and substantial” no agreement has been reached yet. Hans Humes, president of Greylock Capital Management and a member of the Greek creditors’ committee, said he’s “cautiously optimistic” the talks are heading in the right direction. 

The PSI talks in Greece are the primary near term catalyst in EUR/USD trade. The pair has rallied this week largely on speculation that talks will conclude amicably with a deal, avoiding the prospect of messy default by Greece. If that assumption proves true, the pair could once again mount a run at the 1.3000 level, but if the discussions break down once again, the pair could see a sharp sell off as sovereign debt concerns and the unknown ramifications of  the credit event put markets on the defensive once again.

In UK the Retail sales number printed in line at 0.6% versus 0.6% eyed. The volume retail sales was 1.1% higher than the numbers in Q3 – the best quarter on quarter gain since August of 2010, but overall given the -0.4% decline the month prior, UK retail sales show that consumer demand is generally flat contributing little to growth in Q4. Cable drifted lower in the wake of the release prompted by the broad risk off selling as it approached the 1.5450 level after briefly touching 1.5500 in late Asian trade.

In North America today the calendar carries only the Existing home data and the Canadian CPI with currency traders most likely taking their cues from equities. With option expiration Friday likely creating some volatility in stocks, currencies may follow suit, unless the Greek officials and private creditors announce a late hour deal in which case the euro could see another run to 1.3000.    

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Comments (2)

FxP

January 20, 2012 at 05:34 AM ET

Mr.Boris if Greeks reach a deal with its creditors , will it be game changing, or it will be only temporary optimism, on lack of detals or something like this. Thank you.

bschlossberg

January 20, 2012 at 07:13 AM ET

I my opinion temporary

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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.