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Greek Concerns Trump Eco Data as EUR/USD Slips Below 1.3000

Last updated 1/25/2012 5:22 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• IFO beats on headline - no recession in H1 2012
• UK GDO Q4 -0.2%
• Nikkei up 1.12% Europe flat
• Oil at $98.82/bbl
• Gold at $1666.40/oz.

Overnight Eco

• AUD Consumer Prices Index (QoQ) (4Q) 0.6% vs. 0.5%
• AUD Westpac Leading Index (MoM) (Nov) -0.2% vs. 0.15
• JPY Merchandise Trade Balance Total (Yen) (Dec) -0.57T vs. 0.36T
• EUR German IFO - Business Climate (Jan) 108.3 vs. 107.6
• EUR German IFO - Current Assessment (Jan) 116.3 vs. 116.8
• EUR German IFO - Expectations (Jan)
• GBP Gross Domestic Product (QoQ) (4Q A) -0.2% vs. -0.1%
• GBP BBA Loans for House Purchase (Dec)36.2K vs. 35.3K

Event Risk on Tap

• USD MBA Mortgage Applications (JAN 20)
• USD House Price Index (MoM) (Nov)
• USD Pending Home Sales (MoM) (Dec) expected at 1.0%

Price Action

• USD/JPY break to 78.00
• AUD/USD back above 1.0500 after better than forecast CPI
• GBP/USD slips to 1.5500 on weak GDO data
• EUR/USD strong IFO fails to lift it past 1.3050

Another seesaw night of trade in early European dealing with EUR/USD failing to hold the 1.3050 level despite better than expected IFO data while cable was felled by lower than expected Q4 GDP data which printed negative for the first time in more than a year and USD/JPY cleared the 78.00 figure for first time since December of last year as the break out in the pair continued.

In Germany the IFO report printed at 108.3 versus 107.6 as indications for Europe’s largest economy remained positive suggesting that the country will avoid a recession in H1 of this year despite the nagging concerns over the sovereign debt crisis in the region. There IFO data was not universally upbeat with current assessment gauge slipping a bit to 116.3 form 116.8 forecast as present day conditions on the ground remain challenging. Nevertheless the data overall was generally positive but it failed to propel the euro higher. 

The pair made a marginal high of 1.3052 in the aftermath of the release but then cratered to break below  the 1.3000 level as equities profit taking dragged it lower.  The 1.3050-1.3100 region remains stiff resistance for the pair as the firewalling of Greece fails to materialize. The markets continue to worry about the credit risk and until Greece and private investors reach an agreement  forward progress in the pair may be difficult.

Cable in the meantime came under pressure in the wake of weaker than expected GDP data which printed at -0.2% versus -0.1% eyed as growth turned negative in the fourth quarter. The release of the MOC minutes also revealed that so monetary policy makers believed that additional QE may be necessary in order to stimulate the economy. If UK growth continues to lag, the prospect of more QE will become a very real possibility and is likely to weigh on cable for the foreseeable future. The pair rebounded off its lows to trade above 1.5500 level as short covering kicked in, but if risk flows remain negative as the day proceeds it may test the 1.5500 level in North American trade.

In Australia the CPI data printed cooler than expected at 0.0% versus 0.2%, but the trimmed mean data was actually hotter at 0.6% versus 0.5% forecast. The stronger than expected core numbers created some confusion in the market and spurred a short covering rally in AUD/USD.Most market players continue to believe that the RBA will cut rates by 25bp at its next meeting in February, but the recent batch of economic data has been ambiguous enough  to have created some uncertainty as to the central banks intent.  For example, although the latest employment data was far below expectations when the country reported a loss of 29K jobs, the headline number was somewhat misleading given the fact that all of the losses occurred in the temporary sector while permanent jobs actually increased by 24K. The similar disconnect in the inflation readings have left just enough doubt in the mind of the market to have prompted some aggressive shorts to cover.

In North America the focus turns to the FOMC meeting and the post release press conference by Chairman Bernanke. The market will looking for any signs that the Fed may upgrade its assessment of the US economy and in turn signal that it will not consider any additional QE measures. USD/JPY has awakened from its month long slumber taking out the 78.00 figure as traders anticipate a more hawkish posture  for the Fed. If US monetary policy makers comply, then the pair may make a run for the 79.00 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.