Euro, Pound Slide As Eco Data Turns Grim

Top Stories

• BOJ to hold emergency meeting to tomorrow 4 AM GMT to ease corporate credit crunch
• Merkel hesitant to enact tax cuts but German Retail sales horrid at -1.6%
• Korean exports fall 18% vs. year ago
• Chinese PMI 40.9 – weakest since inception in 2004
• Central Bank rate decisions to dominate news this week
• Equities off more than -1% in early Europe
• Oil off $2/bbl to $52/bbl despite OPEC comments for higher prices
• Gold down to $803/oz. testing $800/oz support

Overnight Eco

• AUD AIG Manufacturing Index 32.7 vs. 40.4 last
• AUD M1 Inflation Gauge -0.6% as prices continue to collapse
• AUD Company Operating Profits better at 5.2% vs. 3.3% eyed
• JPY Average Cash Earnings -0.1% vs. 0.1% expected
• AUD Commodity Prices 35% vs. 35.9% last
• EUR German Retail Sales horrid at -1.6% vs. 0.5% forecast
• CHF SVME PMI drops sharply 35.2 vs. 45.5 expected
• EUR Final Manufacturing PMIworse at -35.6 vs. 35.2 projected
• GBP Manufacturing PMI34.4 much worse than 39.8 forecast
• GBP Net Lending to Individuals 1.3B vs. 2.2B projected
• GBP Mortgage Approvals 32K as forecast

Event Risk on Tap

• USD Durable Goods Orders expected at -2.2%
• USD Core PCE Price Index expected at 0.1%
• USD Personal Spending expected at -0.7%
• USD Chicago PMI expected at 36.5
• USD Revised Consumer Sentiment expected at 56.0
• USD New Home Sales expected at -3.3%
• USD Jobless Claims

Price Action

• USD/JPY shaved to nearly 9400 as equities sink throughout the night
• AUD/USD holds 6400 but weaker as risk sold and eco data shows sharp drop in manufacturing
• GBP/USD crushed to 1.5100 as fears of UK funding and miserable PMI numbers accelerate sales
• EUR/USD holds 1.2650 despite weak eco data across the board and pressure on the carry all night long

Euro, Pound Slide as Eco Data Turns Grim

The start of a new week brought only grim economic news from across the ocean driving EUR/USD and GBP/USD lower as equity markets gave up some of last week’s gains and risk aversion returned to the currency market.The data on the economic front was nothing short of horrid as German retail sales, EZ PMI and UK PMI reports all disappointed to the downside.

German Retail sales slid another -1.6% versus forecast of a 0.5% bounce as consumers in EZ largest economy continued to keep their purses shut. Furthermore, Angela Merkels government today dismissed the idea of a tax cut as being fiscally irresponsible, but given the lack of stimulus from German authorities consumer demand is unlikely to recover quickly in the region and could exacerbate the downturn. Although an argument can be made that German officials are being more financial prudent than their Ango-Saxon counterparts, their reticence to act decisively may delay the rebound in Europe and could put further pressure on the EUR/USD especially if US eco data shows some signs of stabilization.

In UK the story was not much different as PMI data and mortgage lending numbers all proved to be weaker than expected. The pound was under even more stress after a report in FT suggested that UK government may have a difficult time raising funds for its bailout and stimulus packages as the needto issue 10 Billion GBP this month would dwarf the average monthly funding requirements of only $2 Billion.

The weakness in risk currencies could become more pronounced as the day wears on if US equity markets follow the rest of the global indices south. Today’s US manufacturing PMI data is likely to disappoint given the troubles in the auto sector and the sharp declines in Empire, Chicago, and Philly numbers. After five straight days of gains the Dow may correct today barring any unexpected catalyst to the upside. Given such a scenario the EUR/USD could test 1.2600 and pound could fall to 1.5000 in North American trade

FX Upcoming

Boris Schlossberg
http://www.gftforex.com

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