Euro retakes 1.20 level, here’s why
Despite rather tepid
economic data from the Euro-zone, the EUR/USD bolted through the 1.2000 barrier
in Asian trade today and held most of its gains throughout the European session.
Tonight’s economic results were less than stellar with EZ Retail PMI printing at
49.7 as it once again fell below the 50 boom/bust barrier after registering a
reading of 54.4 last month. The severe decline was led by Germany which posted a
7 point drop from 52.7 to 42.5. The sharp fall off in German spending is
worrisome but can perhaps be explained as a one off event due to elections and
skyrocketing oil prices in September. If the data, however, does not rebound by
next month it will put into doubt all speculation of near term rate hike by the
ECB.
Today, the ECB is expected to announce that it
will keep rates at 2%, although recently several ECB officials have been sending
out hawkish pronouncements in what many analysts believe is an attempt by the
Central Bank to prepare the market for the inevitable rate hikes. The ECB,
however, must be certain that the fragile Euro-zone economy can withstand the
rise in rates and today’s woeful retail results provided no such assurance.
So why did the pair rally so strongly? Some
market participants speculated that the news of Venezuela closing its US bank
accounts and moving its reserves to Europe, may have sparked the euro rally. But
that announcement was already several days old, and Venezuela’s relatively small
reserves were unlikely to have much impact on the market. Instead as we wrote on
Monday “despite the dollars impressive rally we believe that most of the down
move in the EUR/USD is behind usâ€. Yesterday’s poor showing from the ISM
Non-Manufacturing report was just the catalyst necessary to relieve the oversold
condition in the euro. However, unless US NFP data tomorrow prints far worse
than expected it is unclear how much more momentum is left in this bounce.
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.