Euro Stages A Comeback Despite Horrid German GDP

Daily Forex Fundamentals | Written by GFT | Nov 13 08 10:17 GMT |

Top Stories German GDP shocks to the downside, but EUR/USD bounces back to 1.2500 Japanese FinMin Nakagawa - Rapid FX moves undesirable USD/JPY holds 9500 Chinese Industrial Output tumbles to 8% vs. 11% forecast Mizuho may seek capital from insurers BT to cut 10000 jobs Russia, Kuwait suspend stock trading as Russian retail pulls bank deposits Oil sinks to $55/bbl Gold drips to $710/oz Overnight Eco NZD Business Manufacturing Index 43.5 vs. 46.7 last NZD Retail Sales -0.5% vs. 0.4% forecast JPY CPGI 4.8% vs. 5.5% AUD M1 Inflation Expectations 3.3% EUR German Preliminary GDP -0.5% sharply lower vs. -0.2% EUR French CPI -0.1% as expected CHF PPI -0.6% vs. -0.5% eyed CHF ZEW Economic Expectations -88.5 vs. -88 Event Risk on Tap CAD Trade Balance market looks at 5.1B print USD Trade Balance -56.5B expected vs. 59.1B last USD Unemployment Claims 483K eyed Price Action USD/JPY rallies all the way to 9600 after hitting 9450 in Asia trade as bounce in equities and support at 9500 helps AUD/USD sold hard to 6350 on early risk aversion flows but bounces to 6450 in early Europe GBP/USD tries to makea run back to 1.5000 after crashing to 1.4800 in early Asia EUR/USD makes a massive recovery off 1.2390 lows to retake 1.2500 in early Europe Euro Stages A Comeback Despite Horrid German GDP Yesterday we noted that, 'another triple digit slaughter in equities could easily drag the pair towards the 1.2400 handle for a retest of its recent lows.' In today's late Asian trade that scenario played out to a tee as the EUR/USD was beaten down by risk aversion flows and a much worse than expected German GDP data which printed at -0.5% versus -0.2% forecast. The horrid GDP numbers confirmed the fact that EZ's largest economy has now tumbled into the worst recession in 12 years hampered by slowing export demand from abroad and a retrenching consumer at home.Today's news nearly guarantees another 50bp cut from the ECB in December as price stability now takes a distant back seat to growth in terms of primary policy objectives of European monetary officials. However, despite the dour news, the EUR/USD staged a massive comeback rally in morning European trade retaking the 1.2500 figure after plumbing the lows at 1.2390 only an hour earlier. The sharp gains were attributed partly to large buyer from Germany who bought 2 Billion from the lows. Thus, the price action suggests that 1.2500 has become a key battleground in the pair and at least in the near term even in the light of worsening economic data, that level could act as support. We have been arguing for weeks that range conditions are the most likely outcome for the currency market until the year end, and for now the price action appears to confirm that thesis. The single greatest danger to any EUR/USD long position however, continues to be stocks. If equities accelerate their decline into North American open, all bets will be off and euro could print new lows, opening up the possibility of a further downside test to 1.2000. But any bounce in DJIA today would very likely extend the recovery envelope to 1.2600 and would almost certainly pull the pound above 1.5000 handles as late shorts scramble to cover. FX Upcoming Currency GMT EST Release Expected Prior CAD 13:30 8:30 CAD Trade Balance 5.3B 5.8B USD 13:30 8:30 USD Trade Balance -56.5B -59.1B USD 13:30 8:30 USD Unemployment Claims 483K 481K 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. GFT Global Markets UK Limited is authorized and regulated by the United Kingdom Financial Services Authority. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means Global Futures & Forex, Ltd. ARBN 103 508 461, AFS Licence 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au. You should read and consider the PDS before making any decision to deal in GFT products. © 2008 Global Futures & Forex, Ltd. All rights reserved.