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EUR Resilience, US Jobless Claims

Last updated 2/23/2012 8:53 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

We can tell by the price action of the EUR/USD that investors are either scared of being overly short euros or genuinely optimistic that the worst of Greece's troubles are finally behind us.  It is hard as analysts to understand this sentiment because a credit event for Greece, which is increasingly likely could still wreck havoc on the markets.  However prices do not lie and the EUR/USD is gradually edging higher.  Given the significant amount of short EUR/USD positions in the market, there is no question that fear of a short squeeze has been the main reason for the EUR/USD's resilience.  Euro rose to its highest levels this year following the German IFO report that showed business confidence rising to its highest level since July.  The EUR started to rally during the early European hours and gained momentum after the German IFO report printed at 109.6 versus a 108.8 forecast.   Unfortunately the rally was stopped short by the European Commission's lower growth forecasts.  They now expect the Eurozone economy to contract by 0.3 percent in the first quarter which would technically put Europe back into recession.  The Eurozone is also playing with fire if Dow Jones is right in reporting that they are pressuring Greece to activate their Collective Action Clause.  If even a handful of bond holders refuse to sign on to the PSI deal, credit default swaps could be triggered and the repercussions for the EUR and the financial markets in general would be significant.  

Meanwhile healthier economic data out of the U.S. helped to keep risk appetite supported.  Jobless claims held steady at 351k which is unchanged from last week's upwardly revised report - the revision was small, from 348k to 351k.  Although fewer claims do not translate directly  into greater job growth, as long as claims hover around 350k, it is consistent with an improving labor market.  For the Federal Reserve, this means that there is no immediate need to increase stimulus which is good for the U.S. dollar, particularly USD/JPY.  After rising for 5 consecutive trading days and enjoying a rally with virtually no correction since the beginning of the month, USD/JPY is finally meeting some resistance.  Despite a relatively good jobless claims report, USD/JPY failed to extend its gains.  From a fundamental perspective, we could see USD/JPY rise further as low jobless claims boost interest rate expectations and U.S. yields. However after such a strong rally, a correction, large or small is overdue.  No additional U.S. economic reports are scheduled for release today but a meeting between Merkel, Van Rompuy and Barosso could lead to some interesting headlines. 

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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.