All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Euro and Pound Go Separate Ways

Last updated 4/1/2009 5:48 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• TANKAN hits the lowest reading on record
• Chinese PMI declines in March
• UK PMI prints best reading since October
• Equities mixed with Asia up but Europe down
• Oil $48.3/bbl
• Gold at $920/oz

Overnight Eco

• AUD AiG Performance of Mfg Index 33.4 vs. 31.7 last
• JPY Tankan Manufacturing Index -58 vs. -55
• JPY Tankan Non-Manufacturing Index -31 vs.-26
• AUD Building Approvals much better 7.8% vs. 1.5%
• AUD Retail Sales -2.0% vs. -0.5% called
• AUD Commodity Prices 7.6% vs. 12.6%
• EUR German Retail Sales -0.2% vs. 0.2%
• EUR Final Manufacturing PMI 33.9
• GBP Manufacturing PMI 39.1 much better than 34.9 projected

Event Risk on Tap

• USD Challenger Job Cuts
• USD ADP Non-Farm Employment Change expected at -647K
• USD ISM Manufacturing PMI expected at 35.4
• USD Pending Home Sales expected at -1.6%
• USD Construction Spending expected at -1.8%
• USD ISM Manufacturing Prices expected at 32.4

Price Action

• USD/JPY drops to 98.10 on Obama comments but trades back 99.00 as traders target 100
• AUD/USD comes back to 6900as risk recovers
• GBP/USD much better PMI helps to support run to 1.4400
• EUR/USD holds at 1.3200

As officials met for the G-20 meeting currencies were mixed with no overall theme defining trade today.  In Japan the TANKAN report recorded its worst reading ever but the data had little impact on USD/JPY. Instead the pair reacted to a Bloomberg story that the Obama administration was considering bankruptcy for the auto companies which spurred  a wave of risk aversion that dropped the USD/JPY more than 100 points in a matter of minutes. However, the pair spent the rest of the night crawling back to 9900 with many traders now targeting the psychologically important 100 level for a stop run.

As we noted earlier “Ironically enough, investor optimism, which has been the key force behind the recent rise in USD/JPY& nbsp; may prove to be the best stimulant for Japan’s economy as well. Should USD/JPY recapture 100 and stay there for a significant amount of time, the improvement in Japanese corporate profitability will go a long way towards rectifying the current economic malaise. However, such hopes rest on a very shaky foundation as any evidence of stabilization much less any rebound in global demand remains non-existent for now. If investor enthusiasm fades dragging equity indices back to their lows, USD/JPY& nbsp; will once again return to the 9000 level and any hopes for Japanese economic recovery will vanish.”

Meanwhile data from EZ and UK went their separate  ways with German Retail Sales contracting by -0.2% against expectations of 0.2% rise while UK PMI manufacturing bounced to 39.1 which was much better that the 34.9 projected. The gloomy German data was hardly surprising given the sharp rise in unemployment  and  only confirms  market expectations of a 50bp cut from ECB this Thursday.  The UK manufacturing report on teh oether hand was a welcome bit of news for pound bulls as the PMI gauge registered its best reading since last October.

The divergence in the data was reflected in EUR/GBP which slipped more than 100 points from its London open highs. With ECB  rate hike on the plate tomorrow we expect the pressure on EUR/GBP to continue as the compression of interest rate differentials and the prospect of some form of quantitative easing from ECB should keep the euro on the back foot for the time being.  

Turning to the North American session all eyes will be peeled on the ADP report due 12:15 GMT today.  The market forecasts a small improvement of 643K but should the number surprise to the upside printing greater than 700K, risk aversion could return with a vengeance as investors anticipate further contraction of the US economy.  Much of the recent rally in stocks has been predicated on the idea that Q1 of 2009 was the trough for the US economy. However, with the prospect of bankruptcy for GM and Chrysler looming on the horizon,  the bearish argument that the worst is yet to come could be quickly gain ground especially if the labor data shows further deterioration.

FX Upcoming

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

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.