Euro makes a U-turn, here’s why
The EUR/USD made a
strong turnaround in the European session today after Euro—Zone Industrial
Production results printed much better than market expectations. The
data reported a 2.8% rise on a year over year basis, as the lower currency
clearly helped European manufacturers build momentum in August.
Earlier in the session the pair dropped through
the 1.9000 figure coming within a whisker of probing the yearly lows. The main
cause of the downdraft was a story in Financial Times which stated that Angela
Merkel may have backed away from her pledge to lower German income tax rates.
The news confirmed the market’s worst suspicions that the grand coalition
government will be unable to enact meaningful reforms to jump start the German
economy.
The collapse in the EUR/USD was also exacerbated
by aggressive stop hunting by the dealers forcing many 1.1900 no touch options
expired worthless. The price action however made a very sharp U-turn after the
economic data was released, as the Industrial Production reports suggested that
the Euro-Zone economy may be on a path to growth regardless of which politician
is at the helm.
Meanwhile in Japan the yen remained range bound
near two year highs as fears over hurricane Wilma made for cautious Asian
session trading. The currency market is concerned about any additional damage to
the oil drilling platforms in the Gulf Of Mexico after Wilma suddenly mushroomed
into a category 5 storm. Although, Wilma is not expected to move into the Gulf
heading to the Florida peninsula instead, its final destination will be unclear
until Friday. Japan imports 99.5% of it crude demand and is therefore vulnerable
to any supply disruptions.
Boris
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.