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Euro Gains Tempered by Dour Labor Data

Last updated 3/31/2009 5:20 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• German unemploymnet at cycle high
• Japan tries third stimulus package
• Equities rebound in Asia and Europe
• Oil at $48/bbl still below $50/bbl after yesterday's fall
• Gold at $923/oz.

Overnight Eco

• GBP GfK Consumer Confidence -30 vs, -36 eyed
• JPY Manufacturing PMI 33.8 bounces off teh bottom at 31.6
• JPY Household Spending -3.5% not as sharply off as -4.5% forecast
• JPY Unemployment Rate 4.4% worser that 4.3% consensus
• AUD Private Sector Credit 0.0%
• JPY Average Cash Earnings -2.7% vs. -1.5% forecast
• NZD NBNZ Business Confidence better at -39.3 vs. -41.2 last
• JPY Housing Starts off by -24%
• EUR German Unemployment Change 69K vs 55K.
• EUR CPI Flash Estimate n/a

Event Risk on Tap

• CAD GDP expected at -0.6%
• CAD RMPI expected at 0.3%
• CAD IPPI expected at 0.6%
• USD S&P/CS Composite-20 HPI expected at -18.4%
• USD Chicago PMI expected at 34.5
• USD CB Consumer Confidence expected at 27.8

Price Action

• USD/JPY climbs steadily all night to reach 9850 on risk flows
• AUD/USD trades back to 6900 on AUD/JPY flows
• GBP/USD rallies to 1.4300 as GFK Consumer confidence improves
• EUR/USD capped at 1.3200 for now as unemployment weighs

European equity markets were broadly higher in early morning trade fueling risk appetite in currencies as all the majors with the exception of the yen rebounded against the buck after yesterday massive sell off. The Asian and early European trade was characterized by strong carry flows with yen crosses helping to lift the euro the Aussie and the pound.

After hitting a low of 9600 yesterday USD/JPY rebounded to 9850 partly on better equity market performance but also on the announcement that Japanese Prime Minister Aso will announce the country’s third stimulus plan  aimed at creating 2 million new jobs. Japan reported today that  unemployment climbed to 4.4% from 4.2% matching its highest level in more than three years. The market will also await  today’s quarterly Tankan report which is expected to show massive deterioration to -55 from -24 the period prior.

 Japans Labor Pains

Meanwhile in Europe German unemployment printed at worse than expected 69K job losses versus projections of 55K. As we noted earlier,”the unemployment report is yet another gloomy data point for Europe largest economy and suggests that the recession is becoming worse. ECB President Jean Claude Trichet noted on Monday that the economic outlook for the region is ‘surrounded by a high degree of uncertainty.’  The unemployment news is sure to pressure the ECB to ease further at the upcoming rate policy meeting this Thursday. Market expectations are for a 50bp cut rather than the more typical 25bp cut that ECB usually favors. Given the rapidly deteriorating labor picture we believe that market consensus is correct and EZ rates will decline to 1%.”

The North American session carries Consumer Confidence figures as well as Chicago PMI data both of which may surprise to the upside given the Philly Fed and U of Michigan numberslast week. Should  the US data improve it may boost equities and provide an additional lift for high beta currencies, but given today’s dour labor news from Germany we believe that any rally in the EUR/USD in particular will be tempered as traders consider the wider implication of today’s deterioration in labor conditions  on EZ consumer demand and GDP growth going  forward.   

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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.