Euro bounces back
The path to a stronger euro appears
to be through a weaker euro as evidenced by today’s Italian
Industrial Orders which rocketed up 5.6% on a year over year basis versus 3.8%
expected. The gain was in no small part caused by the drop in the euro which in
turn made Italian goods far more competitive in the global marketplace. We
believe this dynamic will continue to reinforce itself, stimulating better than
expected growth in the export driven Euro-zone which in turn will eventually
translate to a firmer euro currency as the positive results roll in. As the
result of the news, EUR/USD bounced back to 1.2050 after reaching a low of
1.2010 in the Asian session.
With Rita finally off the radar, market players will now stop
playing amateur meteorologists and will likely refocus on the economic data. The
calendar is relatively busy with Housing Data, Durable Goods and Chicago PMI
ahead for US and IFO and German unemployment for the Euro-zone. Up to now the
dollar rally has been built of twin pillars of rising interest rates and
continued economic growth. But those assumptions will be sorely tested this
week, especially with the Chicago PMI data which last month shocked the market
by plunging to contractionary levels for the first time since 2003. Market
expectations are for a rebound but we believe the same currency dynamics that
are beneficial for European manufacturers may be detrimental to their US
counterparts as dollar strength saps much of their competitive advantage. That’s
why the possibility of another negative surprise is quite strong. If, on the
other hand Chicago PMI does rebound, the dollar bulls, much like the residents
of Houston will have escaped a gloomy fate and the case for dollar bullishness
will strengthen.
Boris Schlossberg serves as Senior Currency
Strategist with Forex Capital Markets in New York, the largest retail forex
market maker in the world. He is a monthly contributor to SFO Magazine with
articles focused on understanding proper risk management, trader psychology and
true market structure. He is also a featured expert at
www.fxstreet.com and a frequent
commentator for the Marketwatch From Dow Jones Currency and Bond Report
sections.