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Euro Erases Asian Session Losses as Risk Rallies

Last updated 2/1/2012 5:34 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Chinese PMI, EU PMI, UK PMI all beat
• Risk recovers in Europe
• Nikkei up 0.08% Europe up 1.53%
• Oil at $98.99/bbl
• Gold at $1746/oz.

Overnight Eco

• AUD AiG Performance of Mfg Index (Jan) 51.6 vs. 50.2
• AUD House Price Index (QoQ) (Q4) -1.0% vs. -0.7%
• CHF Real Retail Sales (YoY) (Dec) 0.6% vs. 1.6%
• CHF SVME - Purchasing Managers' Index (Jan) 47.3 vs. 51.7
• EUR EU Consumer Price Index (YoY) (Jan) n/a
• EUR German Purchasing Manager Index Manufacturing (Jan) 51 vs. 50.9
• EUR EU Purchasing Manager Index Manufacturing (Jan) 48.8 vs. 48.7
• GBP Purchasing Manager Index Manufacturing (Jan) 52.1 vs. 50

Event Risk on Tap

• USD ADP Employment Change (Jan) expected at 185K
• USD Construction Spending (MoM) (Dec) expected at 0.7%
• USD ISM Manufacturing (Jan) expected at 54.5
• USD ISM Prices Paid (Jan) expected at 49.8

Price Action

• USD/JPY within pips of 76.00
• AUD/USD rebounds in Europe to 1.0660 as risk flows lift
• GBP/USD better PMI helps the rally to 1.5785
• EUR/USD retakes 1.3100 as equities, PMI all boost

Risk currencies staged a strong  recovery in early European dealing boosted by better than expected PMI data from across the globe, a powerful rally in European stocks and swift short covering after EUR/USD failed to take out the 1.3000 level in Asian trade. EUR/USD soared more than 100 points trading at 1.3135 by midmorning European session while Aussie hovered near yearly highs of 1.0680 as it targeted the key 1.0700 level.

PMI data in China, Europe and UK all beat expectations helping to lift investor confidence as European stocks rose more than 1.5%. In China PMI Manufacturing returned to positive territory printing at 50.5 versus 49.8 eyed easing concerns that the country’s economy may hit a “hard landing”. Nevertheless, as we pointed out earlier, “manufacturing activity has clearly slowed unable to break above 51 level for the past six months.”

In Europe the PMI data remained below the 50 boom/bust line but improved a bit to 48.8 from 48.7 as final German PMI inched higher to 51 from 50.9. Germany continues to act as the engine of growth for the whole region with all of the periphery economies still mired in contraction, but the data has stabilized since bottoming out in November easing concerns of a deep recession.

In UK the Manufacturing PMI was markedly better  printing at 52.1 versus 50 eyed as the new orders component exploded to 55. The news was a welcome relief to pound bulls after a series of recent economic misses and indicated that the manufacturing sector may lead the UK economy  back to growth in Q1 of this year. Cable rose sharply ahead of the news, boosted by overall turn in risk flows, but ran into resistance at the 1.5800 level. Still if the rally in risk continues into the US session the pair should clear that barrier as the day progresses.

In North America today the focus will turn to ADP and ISM Manufacturing reports. Consensus views call for print of 189K reading from ADP and an improvement in ISM to 54.6 from 53.9. If the data meets or beats those forecasts the rally in risk is likely to continue and EUR/USD may make a round trip all the way to 1.3200 while Aussie challenges the 1.0700 level as the short squeeze that started in Asia continues. However, any negative surprise will likely unwind much of today’s European gains as the rollercoaster price action frustrates both bulls and bears.     

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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.