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Euro Retakes 1.3000 After Better Than Forecast ZEW

Last updated 3/17/2009 6:47 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• BOJ to buy $10 Billion of subordinated debt
• ZEW better at -6.5 vs. -11.7
• Equties mixed - Asia up but Europe down in credit concerns
• OIl at $46/bbl
• Gold steady at $922/oz.

Overnight Eco

• JPY Tertiary Industry Activity better at 0.4% vs. -0.5%
• AUD Monetary Policy Meeting Minutes scopr for more cuts
• CHF Industrial Production 0.1% better than -0.1% forecast
• GBP DCLG HPI -11.5%
• EUR German ZEW Economic Sentiment -3.5 vs. -7.7
• EUR ZEW Economic Sentiment -6.5 vs. -11.7

Event Risk on Tap

• CAD Labor Productivity
• CAD Manufacturing Sales
• USD Building Permits ecpected at 0.51M
• USD PPI expected at 0.4%
• USD Housing Starts expected at 0.45M

Price Action

• USD/JPY runs ot 98.90 on strong Asia equity flows
• AUD/USD holds near 6600 as RBS minutes neutral
• GBP/USD drops towards 1.4000 as QE actions weigh
• EUR/USD pivots arund 1.3000 but breaks higher post ZEW

The EUR/USD& nbsp; regained the 1.3000 handle on early European trade  after the ZEW survey of investor sentiment printed better than forecast. The ZEW for the month of March came in at -6.5 versus -12 forecast as investor sentiment improved for the fifth month in a row, The data was somewhat surprising given the dour state of conditions in EZ industrial sector, but clearly investor optimism was driven by hope that the massive fiscal and monetary stimulus put in place by most of the G10 block will soon begin to yield dividends and revive global demand.  

Despite the better than forecast future expectations, the current expectations component of the report remained gloomy printing at 89.4 versus 86.2. The reading reflects the difficult conditions amongst EZ producers who have seen orders decline by more than 20% this year. Nevertheless, investors continue to forecast a rebound in global demand with the euro becoming  the primary beneficiary of risk flows. Having now retaken the psychologically important 1.3000 level the pair appears to have broken out of its 1.2500-1.3000 range and the bias in the market is now clearly to the upside.

One possible reason for dollar’s weakness is the realization by the market that the greenback could lose its safe haven bid status. Yesterday’s much worse than expected TICS data report, while having minimal impact on price action at the time, no doubt fortified the arguments of dollar bears that the currency is facing an exodus of capital.  This was the third time in four months that capital flows turned to a deficit suggesting a  troublesome trend just as US seeks record amounts of financing for its fiscal stimulus projects.   

Today’s US calendar carries Producer Price Index which is forecast to decline from the month prior, as well Housing starts and Building permits data which is expected to remain near  2 year lows. The inflation gauges could print  a bit hotter than expected given the pickup in commodity prices but the housing data will most likely remain in the basement.  Overall event risk, remains a sideshow in this week’s trading as currencies continue to be driven by broader themes of risk. With EUR/USD now having established a bid tone  it will be interesting to see if the unit can target 1.3100 as the day progresses, driven by better eco data and possibly friendly equity market flows.

Skeptical Over ZEW 

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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.