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EUR/USD Finds a Bottom in Morning European Trade

Last updated 4/8/2009 5:40 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Ireland enacts emergency measures to deal with d=budget deficit move weighs on the euro
• Jaoan stimulus to be 37T yen
• UK Nationwide survey slips to match record low
• OIl; at $47/bbl as oversupply concerns weigh
• Gold quiet at $888/oz.

Overnight Eco

• GBP Nationwide Consumer Confidence 41 vs, 45 eyed matches record low
• GBP NIESR GDP Estimate -1.5%
• JPY Current Account bit better at .67T yen
• AUD Westpac Consumer Sentiment 8.3%
• AUD Home Loans very small gain of 0.4% vs. forecast of 2.0%
• JPY Economy Watchers Sentiment 28.4 vs. 20.9 third monthly gain
• EUR German Trade Balance 8.9B vs. 7.5B eyed
• GBP BRC Shop Price Index n/a
• EUR German Factory Orders n/a

Event Risk on Tap

• CAD Housing Starts expected at 132K
• USD Wholesale Inventories expected at -0.6%

Price Action

• USD/JPY falls below 100 as risk aversion continues
• AUD/USD trads back to 7050 on disappointing home loans tafa
• GBP/USD weka Nationwide numbers and risk aversion drive it to 1.4650
• EUR/USD breaks below 1.3200 on problems in Ireland and riak aversion flows

For the third night in a row risk aversion flows dominated Asian trade as Nikkei continued to correct its recent gains, but as European trading settled into its morning routine currencies stabilized with EUR/USD recapturing the 1.3200 handle while USD/JPY crawled back to the 100 level. A spate of negative news from Ireland which proposed an emergency budget plan pressured the euro throughout Asian trading  with the unit falling to a low of 1.3145 as traders feared that Irish fiscal problems may balloon out of control.

Ireland proposed the creation of a bad bank to absorb problem loans from Irish lenders, along with higher taxes and lower government spending to try to bring its deficit in line with European regulations. The country’ s deficit threatens to explode to as much as 24 Billion euros or nearly 10% of its total output  putting it in violation of EZ rules which require member nations to contain deficit spending to no more than 3% of the GDP.

Ireland remains the most pressing problem for the EZ region as the country’s economy has taken a swan dive with GDP shrinking by nearly 8%   while unemployment has soared to a 13 year high. Euro bears argue that ultimately the Eurozone will have no choice but to rescue the Celtic Tiger or risk the threat of dissolution of the union and those concerns have contributed strongly to EUR/USD weak performance over the past 24 hours.

On the economic front the news was considerably better as both German and French trade data showed a modicum of improvement with German Trade balance rising to 8.7B from 7.5B forecast. The news suggest that the  contraction in exports has reached a bottom which should temper any further deterioration in German GDP going forward.

Tentative signs of a bottom were also evident in Japan where the Eco Watcher survey improved for third month is row. As we noted earlier, “Although hardly market moving, the Eco Watcher survey – a poll of taxi drivers, waiters and barbers – is one of the more accurate gauges of Japanese consumer demand as it measures conditions on the frontlines of the country’s economy. Generally the survey tends to lead other consumer related Japanese data by several months indicating that perhaps we will see an improvement in spending as Q2 progresses.”

Turning to the North American session the calendar is quiet once again with only the FOMC minutes as the key event driver for the day. Given the lack of any further monetary action, we do not expected the FOMC to have much market impact although any detailed discussion of further quantitative easing measures could pressure  the dollar. Overall, however, the tone of trade continues to be set by equities as investors assess Q1 earnings and guidance from US corporates. Having corrected for two days straight, both equities and high beta currencies could catch a bounce during US trade today. With EUR/USD now approaching the bottom of its 1.30-1.35 range, the pair may attract some bargain hunters during New York trade and make a run for 1.3300 if appetite for risk revives.

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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.