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Yesterday’s pivot in the EUR/USD from below the 1.1900 figure stalled near the 1.2000 barrier leaving most currency market participants to wonder if this was a true turn for the pair or just a dead cat bounce. Euro bulls received little support form the eco data as the EZ Trade Balance figures registered a bigger deficit than expected (–0.7 Billion vs. projections of 0.5 Billion). Exports rose a respectable 3.3% but imports, hampered by high oil prices, jumped 4.9% on a month over month basis. Overall the data suggests that the far more muted Trade results from Q3 may drag on the overall GDP growth numbers. Indeed top economic institutes for Germany cut their projections for growth in 2006 to 1.2% from 1.5% original estimate.
The numbers may be overly pessimistic however, as the lower euro is spurring surprisingly strong growth in the European manufacturing sector. Latest case in point is the Italian Industrial Sales report which skyrocketed 6.6% higher vs. expectations of –0.2% contraction. As demand for European products revives, the impact on the EZ economy and ultimately the euro itself will most likely be bullish.
For the immediate future, the market will key off the US data which is projected to show a large decline in the LEI report. However, the Philly Fed number may be the crucial event of the session. Last month the number dropped to near 0 printing at 2.2. Today the consensus calls for a bounce back to the 10 handle. If the data should once again disappoint the EUR/USD may clear the 1.2000 barrier as concerns over sustainability of US growth will mount. If on the other hand the report is unabashedly bullish the euro rally may be nothing more than a blip.
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.
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