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Correction in Place as Euro Slide Below 1.3300

Last updated 4/7/2009 5:14 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• RBA cuts 25bp to 3.00%
• BOJ leaves rates unchanged at 10bp enacts 99B stimulus
• Equity marketsmixed at start of Europe
• OIl at $51/bbl
• Gold at $877/oz

Overnight Eco

• NZD NZIER Business Confidence -65 worst since 1970
• AUD AIG Construction Index 30.4 vs. 29.5 last
• JPy Rate Decision unchnaged 10bps
• AUD Rate Decision cuts 25bp to 3.00%
• GBP Manufacturing Production -0.9% vs. -1.4% forecast
• GBP Industrial Production -1.0% vs. -1.1% expected

Event Risk on Tap

• USD IBD/TIPP Economic Optimism
• USD Consumer Credit expected at -3.3B

Price Action

• USD/JPY mildly lower to 100.40 as equities correct the rally
• AUD/USD remains above 7100 on relief that RBA cut only 25bp
• GBP/USD raliies back above 1.4700 as IP/MP not as bad as feared but quickly gives up the move
• EUR/USD fails at 1.3400 and slides towards 1.3350

High beta currencies continued their correction on the second night of trade this week following equities lower as both the dollar and the yen strengthened mildly in a relatively quiet Tuesday session. With economic calendar once again barren trading was dominated by central bank news with both BOJ and RBA announcing rate decisions tonight.  

As expected the BOJ left rates on hold at the ultra low rate 10bp but loosened its collateral requirements to include government backed and municipal bonds in order to provide more liquidity to the market. FX traders generally shrugged off the news and USD/JPY traded primarily on risk aversion flows as the Nikkei ended its four day winning streak. The pair is now close to falling back through the 100 barrier and could easily test support there later in the day if US equities follow suit and sell off further.

Meanwhile the true price action of the night was in the Aussie as RBA managed to split the difference between the bulls and the bears by cutting rates by 25bp instead of 50bp expected by the doves and 0bp projected by the hawks. As we noted earlier, “While growth is a problem, the RBA’s true concern may be the rising tide of unemployment. The Australian Chamber of Commerce is projecting that unemployment may hit a whopping 9% this year from the current 5.2% level. The next labor market data is due 0:30 GMT this Thursday with market estimates calling for a -25K loss in jobs. The unemployment report could prove to be the pivotal factor in determining the currency’ short term direction and should the labor market data prove more negative than expected the unit would very likely break the 7000 level of support as  traders will begin to price in yet another rate cut from the RBA.”

Meanwhile in UK both Industrial and Manufacturing production figures printed a bit better at -1.0% and -0.9% respectively, but the overall data still looked horrid with year over contraction of -12.5%. UK production gauges are clearly starting to signal   some sort of stabilization but at markedly lower levels and thus, although the news was better than expected, currency showed little enthusiasm for any additional pound longs in the aftermath of the release as GBP/USD fell through 1.4700 level.

 UK Industrial Production Stabilizing?

Finally EUR/USD continues to trickle downward as the pair failed to take out the 1.3400 handle to the upside in early European trade  retracing towards the 1.3300 barrier as the night progressed.  With equities continuing to correct  while EZ data remains downcast, the euro remains vulnerable to a selloff this week.  If US equities  fall further in response to the first batch of Q1 earnings reports the pair could trade all the way to 1.3200 by the end of the North American session

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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.