Euro Targets 1.3000

Last updated 3/16/2009 5:42 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• US will buy toxic assets in public/private partnership
• G-20 ends with no agreement on global stimulus buy will allocate more money to IMF
• BoJ will buy subordinated debt spurring rally in Asia
• Oil down below $45/bbl as OPEC does not lower production
• Gold steady at $926/oz.

Overnight Eco

• NZD Manufacturing Sales 0.0% vs. 1.3%
• GBP Rightmove HPI 0.9% vs. 1.2%
• EUR CPI n/a
• EUR Employment Change n/a

Event Risk on Tap

• CAD Capacity Utilization Rate
• USD Empire State Manufacturing Index expected at -32.0
• USD TIC Long-Term Purchases
• USD Capacity Utilization Rate expected at 71.1%
• USD Industrial Production expected at -1.3%

Price Action

• USD/JPY pivots around 9800 all night long
• AUD/USD better risk appetite takes it to 6600 by early Europe
• GBP/USD stages teh strongest bounce as it comes within reach of 1.4200
• EUR/USD 1.3000 remains elusive but risk appetite provides boost after early Asia selloff

The euro and pound rose on the first trading day of the week as risk appetite returned to the currency market after US Treasury Secretary Tim Geithner promised to release details of a new plan to use a private and public partnership funds to remove toxic assets off the balance sheets of US banks. Both Asian and European equities rose providing a strong bid tone to the risk currencies. Cable rallied through the 1.4100 handle and euro approached the psychologically key 1.3000 level by midday European trade.

As we noted earlier, “It is of course much too early to tell if the massive monetary and fiscal stimulus will stem the tide of losses in financial sector and stabilize the US economy, but today’s coordinated message of commitment from both Chairman Bernanke and Treasury Secretary Geithner is the first semblance of competence from the Obama administration that has come under heavy criticism for lack of clear policy initiatives to deal with the economic crisis. If the positive mood amongst investors continues throughout the US session 1.30 in the EUR/USD and 1.4200 in the GBP/USD could fall by the wayside as risk appetite returns to the markets.”

The economic calendar remained quiet as the week began with only the EZ CPI as the one release of note on the European docket. The market expects the reading to stay at 1.2% like the period prior – well below the 2% ECB target rate. The inflation data in the EZ is unlikely to move the markets, but should it print a bit hotter than forecast it will offer some measure of support to the euro bulls argument that ECB will not lower rates much further. Unlike its G4 counterparts the ECB is loath to move towards a true Zero Interest Rate Policy most likely stopping at the 1% level especially if price levels begin to stabilize and even rise after the massive decline of the past few months.

Meanwhile the US economic calendar carries Empire Manufacturing with traders no doubt eying a rebound from deeply depressed conditions of last month, as well as the TICS data. The TICS report is expected to be a bit better rising to $44 Billion from $34 Billion the month prior. Although currency markets have generally shrugged off the steady decline in US capital flows, we continue to believe that this report will become much more important as the year progresses, especially as US ramps up its fiscal spending plans seeking an ever greater share of global capital. If today’s report shocks to the downside, it may be the first clue that future financing of record US budget deficits will become decidedly more difficult and could push teh EUR/USD past the 1.3000 hurdle 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.