EUR Waits on Main Event

To date, the EUR has been hitting all the high notes, just in time for the main event this week, the EU summit meeting. Many investors had been waiting for this meetings outcome before applying their own proactive trading strategy. They have been hoping for further clarity on how euro-zone leaders intend to tackle the financial situation in Spain and Greece. In doing so, they have missed participating in the single unit’s risk on trade special that has occurred this week. So far, Global bourses remain supported on upbeat US housing numbers and as China’s Q3 GDP met expectations. Growth data was just part of a data deluge from China that is supporting the risk trade. The headline prints supports the idea of a soft landing for the economy and perhaps no strong push for further policy easing by the PBoC.

China’s GDP grew +7.4%, y/y in 3Q, compared with a +7.6% rise in Q2, marking the seventh consecutive quarter of slower growth. Also, on a quarterly basis it rose +2.2% in Q3, following a revised +2.0% increase in Q2. The Chinese economy has slowed more than most of us had hoped and more than authorities would have wanted. However, the +7.4% GDP y/y growth is far from a collapse and not the proof for a hard landing many had feared. Premier Wen Jiabao is confident that his country will reach its economic targets for the year and that his economy was in relatively good shape. Other data releases showed that fixed asset investment growth was +20.5%, y/y in September, following the +20.2% rise in August, IP rose +9.2% and retail sales grew +14.2%, y/y versus a +13.2% increase in August.

Sterling continues to get its just deserts from economic releases. This morning UK retail sales rose more than expected last month, boosting hopes for a strong Q3 GDP reading for the recession hit economy. The volume of retail sales rose +0.6% on the month and +2.5% on the year last month. There was even a modest revision to the August headline print. The data was helped by back-to-school purchases and pre-winter sales. What should be a concern to analysts is the shift in pricing power. This can be measured by the implied price deflator, higher prices dampen future spending? Retail sales account for roughly of UK GDP and a strong pick up will certainly have a positive affect on the quarters growth numbers.

It’s never plain sailing with the Greeks leaders and they still remain a tough sell. However, Greece apparently has agreed with the Troika lenders on most measures in a new +€13.8b package of spending cuts and tax increases. Leaders had hoped of being able to present the whole deal to other members at the EU summit, alas, a disagreement over labour market reforms prevents this from happening. Greece now expects the differences on labour issues to be resolved during further talks next week.

Apart from EU summit tidbits, today’s US claims data and Philly Fed headline print should provided further insight into the extent to which the States economic activity is picking up, especially after a number of pleasant surprises in US data recently. Despite weekly jobless claims falling sharply last week, many suggest this occurred because of technical or seasonal anomalies. Do not be surprised to see the headline print rebound a tad to around +370-372k and just below the four-week moving average. It seems that market consensus is calling for a rebound in the Philly Fed headline to positive territory for the first time in six months. The bang for your buck would be to watch the risk sensitive currencies that have strong ties to the US. Just look north of the border at the loonie. Any disappointment in the headline, couple with Governor Carneys somewhat dovish rhetoric this week could leave the CAD exposed.

Forex option expires could contain the EUR outright until option cutoff this morning. There are whispers of a large +EUR1.31 strike expected to run off then. This week has seen its share of option related pricing, so do not be surprised to see several other strikes stifle the single units moves first thing. Some long EUR profits have been booked in the O/N session (based on price action). Expect the market again to use any EUR pullbacks as a fresh opportunity to one again establish new long positions. It seems that investors have raised their bids close to yesterday’s lows (1.3085-90-first true round of support after option expiries) first time around.

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EUR Stops are Chasing a Bigger Win