Euro Recovers as Rita Rises in the Gulf
It didn’t take long for
the FX market to unwind the dollar long profits from yesterday’s FOMC rate hike
as new concerns about the potentially lethal impact of Hurricane Rita quickly
squashed any dollar bullish sentiment.
The EUR/USD rose more than 100 points off its
lows trading at 1.2220 in early morning European session. With Rita headed for
the Texas coast and possibly the refining facilities around Houston, the energy
markets have once again reacted violently to the news. “You got a right cross
with Katrina and now a left hook with Rita,” said Agbeli Ameko, a partner with
First Enercast Financial Inc., a Denver-based energy forecasting firm. “That’s
worse than getting hit twice in the same spot.”
The euro was also buoyed tonight by much better
than expected French consumer spending which rose 1.9% vs. 0.3% projected on a
month over month basis. As the second largest economy in EU, any marked increase
in French consumption would have a strong benefit for the union as a whole.
Meanwhile Gerhard Schroeder announced that he would not further contest for
Chancellorship of Germany if Mrs. Merkel did the same, opening the possibility
that a new leader could emerge from among the powerful conservative state
premiers with strong pro market sentiments.
The political jockeying notwithstanding, the FX
markets is once again preoccupied with the weather in the Gulf Coast rather than
the more typical economic and geo-political concerns. If Rita, which has already
reached Category 3 strength and is expected to become Category 4 hurricane, does
slam into Houston, it may well tip the US economy into a recession. Coming as it
does on the heels of the most inopportune Fed rate hike in the wake of
plummeting consumer confidence numbers, the dollar bulls can only hope that Rita
does not become an economic storm as well as a meteorological one.
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.