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Risk Returns - Can Euro Hit 1.3000?

Last updated 3/13/2009 5:34 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• China's Wen - concerned about credit quality of US Treasuries
• Equities rally in Asia and Europe following NY gains
• G-20 begins today
• Oil at below $47/bbl
• Gold corrects mild;y to $921/oz.

Overnight Eco

• NZD Retail Sales -1.1% vs -0.1% but core better at 0.3% vs. 0.2%
• JPY Revised Industrial Production -10.2% vs -9.9% eyed
• CHF PPI -0.6% vs. 0.2%
• EUR Retail Sales n/a

Event Risk on Tap

• CAD Employment Change expected at -50.0K
• CAD Unemployment Rate expected at 7.4%
• CAD Trade Balance expected at -0.8B
• USD Trade Balance expected at -38.4B
• USD Import Prices expected at -0.7%
• USD Prelim UoM Consumer Sentiment expected at 55.3

Price Action

• USD/JPY blows through 9800 on European open as risk flow return
• AUD/USD targets 6600 as risk appetite comes back
• GBP/USD 1.4000 caps the rally for now
• EUR/USD takes out 1.2950 but stall on European open

Euro spend most of the Asian session consolidating  and correcting some of its massive gains from yesterday, but jumped higher to take out the 1.2950 level as European trading began.  On a night when the economic  calendar was essentially barren risk appetite flows dominated trade as the pair oscillated around the 1.2900 handle.

With global equities continuing their recovery rally from multi year lows, currencies were clearly driven by much better sentiment towards risk with Aussie and Kiwi leading the way. AUD/USD approached 6600 while NZDUSD crossed 5250 as the last two high yielders amongst the G10 attracted speculative capital on the assumption that global equities may have put in a bottom.

Whether the recent lows in equities will hold still remains to be seen. We suspect that the price action in stocks is nothing more than a short covering rally, and the very same dynamics that are pushing stocks higher are driving currencies as well. With Aussie and kiwi yielding up to 300 basis points more than the dollar, the daily roll costs must be weighing on the leveraged spec shorts who were late to the game and some must have scrambled to close their positions as the Asia Pac commdollars rallied relentlessly over the past 24 hours.   

With only the US Trade data on the calendar today event risk remains essentially nonexistent and focus will no doubt turn to the G20 meeting this weekend. It was interesting to note that the markets shrugged off comments by Chinese Premier Wen Jiabao that he was concerned about the safety of US government debt.

Typically such talk would spur another bout of risk aversion but USD/JPY actually rallied 170 points off the Asian session lows in the aftermath of the remarks.  With markets now  feeling that the worst may be behind them, Mr. Jiabao remarks were clearly viewed as nothing more than jawboning and traders paid more attention to the positive statements from US financial institutions rather than Mr. Jiabao concerns.  If the DJIA manages to extend its gains into the week-end the risk flow trends in currencies should continue and EUR/USD could make a run for 1.3000 before the day’s end.

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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.