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Euro Shrugs Off IFO Rallies Off the Lows

Last updated 2/24/2009 5:46 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• AIG to report biggest loss in US history - $60 Billion looking for more US government aid
• IFO only slightly worse than forecast
• Equities broadly lower as Nikkei approaches 26 year lows
• OIl at $38/bbl
• Gold quiet at $988/oz

Overnight Eco

• JPY CSPI -2.2% vs. -2.5%
• EUR French Consumer Spending much stronger at 1.8% against 0.2%
• CHF Employment Level better at 3.96M vs. 3.91M
• CHF UBS Consumption Indicator .985 versus 1.15 last
• EUR German Ifo Business Climate 82.6 vs. 83
• EUR Current Account better ta -7.3B vs. -16B last
• GBP BBA Mortgage Approvals increases to 23K from last months 22K
• GBP Prelim Business Investment less dour than forecast at -.39% against -4.2%
• GBP CBI Realized Sales n/a
• EUR Industrial New Orders -5.2% vs. -4.9%

Event Risk on Tap

• USD S&P/CS Composite-20 HPI expected at -18.3%
• USD CB Consumer Confidence expected at 36.0
• USD Richmond Manufacturing Index expected at -46

Price Action

• USD/JPY breaks 9500 in Asia as unit continue sto decouple from risk flows
• AUD/USD hovers near 6500 as AUD/JPY buying helps lift the pair
• GBP/USD subdued at 1.4500 level as focus shifts elsewhere
• EUR/USD recovers off Asian session lows on EUR/JPY flows IFO has no impact

The euro shrugged off another weak IFO report and rallied off the Asian session lows breaking above the 1.2800 barrier by early European trade. IFO survey of business sentiment printed yet another new low at 82.6 versus 83 forecast but market expectations were already dour and the data had minimal impact on the pair as EUR/USD continued to benefit from EUR/JPY flows. Yen crosses were all broadly higher despite weak equities in Asia and Europe as the Japanese currency has now decoupled from risk aversion flows. USD/JPY reached yearly highs today  breaking above the 9500 barrier in Asian trading. Analysts attribute the new round of yen selling to the growing realization by the currency market that the weakness in the Japanese economy may have become too serious to ignore.  

The latest GDP figures released on February 16th which showed a double digit collapse in output were shockingly low and the market may be finally appreciating the negative economic consequences of such data. Ironically enough, a weaker yen is just the medicine needed to help Japan recover from its current economic ills. At USD/JPY 100 Japan’s export driven  corporate sector would see  a significant improvement in its margins and the country's economic fortune may finally take a turn for the better.

Turing back to euro we noted earlier that , “Tonight’s reading not only reconfirms ECB’s signal to the market that it will lower rates at its next policy meeting in March, but also opens up the possibility that European monetary authorities will ultimately take rates to the 1% level.  Indeed,  a host of ECB officials have recently hinted that more easing is to come and given the weak IFO data the currency market is likely to expect 1% rates by the summer.”

With only a smattering of housing data on the docket, the North American session carries little meaningful event risk, but currency markets are likely to pay some attention the Chairman Bernanke’s Report on Economy and Federal policy. Last night’s news that AIG will report the largest loss in US corporate history and may ask for additional government funds continues to weigh on the dollar as problems in the US  financial sector mount. Thus, despite the depressed IFO levels in the EZ the euro shows few signs of further weakness as traders looks askew at the dollar side of the equation. Still we continue  to believe that  the pair will remained range bound for the time being as markets see very little reason for enthusiastic longs on either side.  

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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.