Market's Rally Half Hearted, Euro Rangebound In Tired Trade

Daily Forex Fundamentals | Written by GFT | Oct 17 08 10:02 GMT |

Top Stories Asian and European markets bounce after Dow's strong close, but rally stalls Carry can't hold the highs as equity investors continue to sell into rallies Korea in crisis talks regarding its banking sector Fed Rosengren - financial troubles spilling over into real economy GM and Chrysler deep in to merger talks Renault denies interest in buying Jeep Libya takes 4.5% of Unicredit Economic calendarvery light and trading flows lackluster as the volatile week comes to an end US equity futures turn negative pre-open Oil holds above $70/bbl - bottom here? Gold remains above $800 but needs to hold these levels to preserve the uptrend Overnight Eco JPY Tertiary Activity-1.4% vs. -0.8% forecast AUD Import Prices 5.0% vs. 0.5% forecast EUR Trade Balance Event Risk on Tap USD Housing Starts 888K expected USD U of M market looks at 66.0 - may be lower given collapse of equities Price Action USD/JPY holds above 101.00 but carry rallies continue to run out of steam, 102.00 caps for now AUD/USD gives back almost al the gains after rallying to 6990 on early post Google euphoria GBP/USD very quiet at 1.7300 as calendar barren and carry flows limited EUR/USD1.3500 continues to cap, oil needs to hold $70/bbl to provide further support Market's Rally Half Hearted, Euro Rangebound in Tired Trade In the wake of Dow's strong rally yesterday that saw the index swing 800 points intra-day to close +300 on the session, both Asian and European shares followed suit with bounces of their own. However, the overnight action in currencies has been decidedly lackluster with little follow through as exhaustion appears to be story of the day. With global economic calendar almost barren until the US session the central theme of trade is TGIF, as dealers square up positions after some of the greatest turbulence in currency market history. The docile pace of trade is unsurprising given the fact that volatility is far more mean-reverting in the markets than price. Indeed, if the credit crisis conditions ease, the next few weeks may bring on a frustratingly rangebound environment as traders begin to assess the impact of the financial meltdown on the real economy. There is little doubt that some sort of contraction will occur and the only question facing the market is will the recession be shallow or deep. Today's EZ Trade data has already provided us with some indication to the severity of the problem with Trade Balance reporting a much wider than forecast deficit. The deficit increased to -6.1B euros on a seasonally adjusted basis against calls for a -5.4B print. This is the second consecutive month of negative trade data and suggesting a disturbing trend. The EZ economy, which has always distinguished itself as a trade surplus region, may now follow in the foot steps of US by running chronic deficits. This in turn will weaken the EZ balance sheet position and destroy it reputation as net capital exporter at a time when global credit conditions have deteriorated markedly, making unit much more vulnerable to global capital flows. In North American session today the calendar carries housing starts and permits numbers which are projected to decline further, but with market expectations already low, their impact is unlikely to move trade in the currency market. The release of the University of Michigan data will be of more interest to traders. We believe that consensus estimates may be underestimating the dourness of the consumer mood given the collapse of global capital markets in October.If the number prints materially worse it may unwind much of yesterday's end of day rally and drag carry down with it. While EUR/USD and GBP/USD continue to consolidate appearing to form some sort of a tradable bottom, the danger of further downside risks is quite real if global equity markets decide to retest their lows. FX Upcoming Currency GMT EST Release Expected Prior USD 12:30 8:30 USD Housing Starts (SEP) 878K 895K USD 12:30 8:30 USD Building Permits (SEP) 840K 854K USD 14:00 10:00 USD U. of Michigan Confidence (OCT P) 67 73 Boris Schlossberg http://www.gftforex.com DISCLAIMER: GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading and GFT Global Markets UK Limited. 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