Euro Stalls Ahead of Highs

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Market Drivers January 3, 2018
GE Unemployment beats
UK PMI Construction misses forecast
Nikkei -0.08% Dax +0.37%
Oil $60/bbl
Gold $1314/oz.
Bitcoin $14800

Europe and Asia:
EUR EZ GE Unemployment -29K vs. -13K
GBP UK PMI Construction 52.2 vs. 53.0

North America:
USD ISM Manufcaturing 10:00
USD Fed Meeting Notes 14:00

FX markets were generally steady in Asian and early European trade today, the strong run seen in the euro and sterling yesterday came to a screeching halt as both pairs ran into a wall of sellers.

EURUSD could not push past 1.2060 as the fresh multi-year highs remained tantalizingly out of reach for euro bulls despite strong economic data from the region. In Germany unemployment hit new record lows and CPI price inched higher, but no avail as the pair faded back to 1.2010 by morning North American trade.

The 1.2000 level will now set up as a big battle between longs and shorts as a failure to hold here would suggest a failed double top in the pair and lead the way for steeper correction.

In UK the PMI Construction data just missed its forecast at 52.2 versus 53.0 but nevertheless showed that the housing sector remained strong. According to Markit, ”Survey respondents indicated that house building remained a key engine of growth, with residential work expanding for the sixteenth consecutive month in December. In contrast, latest data indicated a moderate fall in commercial construction, thereby continuing the downward trend seen since July. Civil engineering work stabilized during the latest survey period, which ended a three-month period of decline.”

Still, cable wobbled as well trading back to the 1.3560 level as focus shifted back to Brexit negotiations. There were some reports the UK may be considering joining the TPP pact, but China chimed in that such a move would be premature.

All this weakness occurred without the concomitant dollar strength Despite 10-year yields rising to 2.46% USDJPY was flat to lower at 112.25. Today the market will get a look at ISM Manufacturing and Fed minutes. The data is expected to be slightly lower but still near the recent range highs. If however, ISM Manufacturing shows a bigger than expected drop USDJPY could quickly fall below the 112.00 figure given the lack of enthusiasm for the buck the FX market now. Traders continue to view Fed actions with caution and any dip in the data would only strengthen that bias today.

Boris Schlossberg
Managing Director

One thought on “Euro Stalls Ahead of Highs”

  1. How can anyone find any fundamental arguments justifying the lower market rates in Southern EU compared to USA?
    ECB (and BOJ) are so totally cornered. Just take a look on ECB’s balance sheet of zero rate Sovereign Debt to be refinanced (by who?) and the NPL levels in Italian, Portugese, Greek and Spanish banks. OMG!
    BTW bitcoin will surely be taken down/over by Governments with legislative powers backed by guns. .

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