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EUR Extends Losses, Looking for Support, US Data Mixed

Last updated 11/23/2011 9:14 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

As we warned in recent reports, the lack of breakthrough in European rescue talks means the path of least resistance is lower in the euro. Although we are not surprised to see the EUR/USD trading at a 6 week low this morning, we are still dismayed because what is bad for Europe is bad for asset and portfolio values around the world. Risky assets have fallen across the board signaling the potential for another tough day in the equity and currency market. The next level of support for the EUR/USD is its October low of 1.3145.

The crisis in Europe is hitting very close to home this morning for the Germans who sold only EUR 3.644 billion of the EUR 6 billion in 10 year bunds on auction today for an average yield of 1.98 percent. German bunds are typically considered the safest investment in Europe and possibly even one of the safest investments in the world but the failed bund auction proves that Germany has a lot to lose as well if the crisis in the region is allowed to worsen. They have been extremely reluctant about dipping their hands back into their pocketbooks but today's auction serves as a reality check for the Germans who cannot turn their backs on the rest of Europe for much longer. The bund auction was the straw that broke the euro's back, erasing any goodwill creating by the IMF's offer of liquidity yesterday. Investors are wary of holding any European assets and if the Germans want to reverse this vicious cycle, they need to dump more money into the EFSF. The continued contraction in Eurozone service and manufacturing activity indicates that the region's economy is weak and if borrowing costs continue to rise at their current pace, Europe could be headed for recession. Time is running out for the Germans to act - Italian bond yields are trading dangerously close to 7 percent while French, German and Italian yields up across the board.  

On the other side of the Atlantic, U.S. economic data was mixed. Durable goods orders fell 0.7 percent last month, which was less than economists had expected but not nearly as good when including the sharp downward revision to the prior month's report. Excluding transportation orders, demand for big ticket items made to last for a few years increased 0.7 percent which is encouraging but still fairly weak. Personal income rose 0.4 percent while personal spending rose 0.1 percent. The trend of slower spending and faster income growth suggests that Americans are finally adopting healthier spending habits but unfortunately this is largely caused by slow wage growth and a pessimistic outlook for the U.S. economy. The one piece of unambiguously positive news was jobless claims which held steady. Claims rose slightly to 393k from 391k - but as long as claims remains below 400k, non-farm payrolls will benefit from the labor market moving in the right direction. 

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.