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Risk FX Continues Rebound as Eco Data Proves Supportive

Last updated 2/17/2012 5:51 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• UK Retail Sales blow past expectations at 0.9% vs. -0.3%
• Risk Fx continues recovery
• Nikkei up 1.58% Europe up 0.94%
• Oil at $102.70/bbl
• Gold at $1734/oz.

Overnight Eco

• EUR German Producer Price Index (MoM) (Jan) 0.6% vs. 0.4%
• GBP Retail Sales (MoM) (Jan) 0.9% vs. -0.3%
• GBP Retail Sales ex-Fuel (MoM) (Jan) 1.2% vs. -0.4%

Event Risk on Tap

• USD Consumer Price Index (MoM) (Jan)
• USD Consumer Price Index Ex Food & Energy (MoM) (Jan)
• USD Housing Starts (MoM) (Jan)
• USD Leading Indicators (MoM) (Jan)
• CAD Consumer Price Index Core (MoM) (Jan)
• CAD Consumer Price Index (MoM) (Jan)
• CAD Leading Indicators (MoM) (Jan)

Price Action

• USD/JPY trades through 79.00
• AUD/USD remains well bid as 1.0800 in view
• GBP/USD strong Retail Sales data propels o 1.5850
• EUR/USD rallies to 1.3150

Risk FX continued its recovery in morning European trade aided by much better than expected Retail sales data from UK. EUR/USD climbed to 1.3150 as markets became convinced that the ongoing negotiations for the Greek bailout will finally conclude next Monday, while cable rose  through the 1.5850 barrier after January UK Retail sales posted an impressive jump in volumes.

UK Retail Sales surprised to the upside printing at 0.9% versus -0.3% eyed .This was the second positive reading in a row and fourth out the past five months, indicating that UK consumer demand  is far more robust than the market consensus view. The strong jump in retail sales volumes was particularly surprising given the  weak BRC data which showed spending fell by -0.3% last month. Growth was driven by 5.9% increase in “other” category which includes chemists, computer stores, bookshops and jewelry stores. Household goods stores also saw a sharp rise to 4.8% indicating that the housing sector is beginning to recover.

The latest retail sales data provides tangible proof of better consumer sentiment, which recently recorded a five month high indicating that the UK economy is likely to rebound in Q1 of 2012. The news also tempers expectations of further increases in QE from BOE which  should prove positive for the pound over the near term.

Cable remained well bid in post release trade holding near the 1.5850 level and could make a run to 1.5900 figure if risk flows in North America prove supportive. The North American calendar is relatively quiet today with only CPI and LEI data on the docket which is unlikely to have much impact on trade. FX markets continue to trade off headline risk from Greece, but unless there are last minute stumbling blocks out of Brussels it appears as though officials may have finally reached a deal which is expected to be approved on Monday. 

Risk FX has staged a strong recovery since yesterday’s lows boosted by better than expected global economic data and relief over the prospect of  a Greek bailout. If US equities extend the rally EUR/USD could test 1.3200 level and AUD/USD 1.0800 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.