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Dollar Gains Modestly on Safe Haven Bid

Last updated 3/11/2009 6:02 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• China's Trade Balance collapses to 4.8 Billion from 27.3 eyed
• UBS posts wider than expected $18 Billion loss
• Equities in Europe falter after Chinese news
• OIl off to $45/bbl
• Gold bounces back above $900/oz.

Overnight Eco

• AUD Westpac Consumer Sentiment -0.2%
• JPY Core Machinery Orders -3.2% vs. -4.9% forecast
• GBP NIESR GDP Estimate -1.8%
• AUD Home Loans 3.5% vs. 4.0% called
• EUR German PPI much weaker at -1.2% vs. -0.1% expected
• GBP Trade Balance -7.7 Billion vs. -7.5 forecast
• EUR German Factory Orders n/a

Event Risk on Tap

• CAD NHPI expected at -0.3%
• USD Federal Budget Balance expected at -197.0B
• NZD Interest Rate Decision expected at 2.75%

Price Action

• USD/JPY stabilizes near 9840 after falling on China trade news
• AUD/USD drops to 6400 after weak Chinese Trade data but manages to rebound slightly into Europe
• GBP/USD trapped between 1.3800-1.3650 as risk flows play tug of war
• EUR/USD 1.2650 remains short term support for now

The dollar picked up a bit of a safe haven bid after Chinese trade numbers printed far worse than expected triggering fears  of further slowdown in global growth. China’s trade balance slipped to a surplus of only $4.8 Billion versus estimates of a 27.3 Billion number. Exports fell sharply and the overall surplus  proved to be only one eighth as large as the month prior.

The euro, pound and all commodity currencies immediately declined on the news as risk aversion swept through the market, but as the night wore on all the risk currencies regained a large part of their losses. As we noted earlier, “the dollar safe haven trade could become suspect if persistent declines in export revenue, begin to curtail China’s demand for US Treasury securities.  For now, the currency markets assume that US deficit financing will proceed without a problem this year, but today’s shocking decline in Chinese trade balance numbers suggests that the current consensus view may be much too sanguine.”  

In other economic news the UK Visible Trade Balance printed a bit worse than forecast at -7.7 Billion versus -7.5 Billion eyed but the market was geared for a negative number and the impact on the pound was negligible. Overall, the week’s economic calendar remains primarily second tier with only tomorrow’s US Retail sales data of any interest to the market.

With event risk essentially non-existent this week the markets continue to trade in contained ranges with a slight dollar bias still dominating trade. Cable having broken below 1.4000 now finds that level to be serious resistance and any further negative news out of UK could push the unit to retest the 1.3500 lows. EUR/USD meanwhile has been rejected at the 1.2800 handle and continues to consolidate quietly with 1.2500 acting a primary support.

The US economic calendar today is barren and currency trading could  remain contained for the rest of the day, unless the meeting between Treasury Secretary Geithner and Chinese Foreign Minister Yang Heichi produces  some surprise announcement which is unlikely.

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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.