EUR Shorts Wait for the Next Leg Down

EUR bears are beginning to feel the heat as their currency decides to grind higher, force exiting some of the “weaker” yearly shorts. Last nights “next leg” uptick was fueled by the possibility that China again may warrant another easing cycle to stave off any perception of a recession. The market is speculating that Chinese policy makers may act to spur growth in the world’s second largest economy. The CNY added the most in three-weeks as European leaders boost efforts to tackle the debt crisis.

Chinese data yesterday revealed that their import growth fell to a two-year low in December (+11.8% vs. +21%), underscoring an economic slowdown. Few expect the Chinese economy to experience a hard landing, and with the flexibility of the PBoC decisions, other economies can anticipate the authorities there to already be considering using monetary easing tools to prevent a disruptive economic landing. Slowing imports growth in China usually reflects softer domestic investment demand and weaker commodity prices. Overall, the country’s trade balance recorded a +$16.5b surplus last month, bringing the 2011 total to +$158b.

It was the antipodean countries that have led the rally versus the dollar in the O/N session. The little bit of improved risk sentiment has been fueled by data down under. In Australia, November building permits advanced +8.4% from October, when they fell a revised-10%. This positive print was the first in the region in three-months.

The market has underestimated the strength of the stoic and stern words yesterday from some of the Euro leaders. Euro policy makers are improving their perception of determination to find an end solution to their regional problem. A “united” front is providing the fuel for an assault on a new EUR topside; at least before any next leg lower.

This morning’s Euro data seems to be at odd’s with the gloomy outlook for the French economy. France’s IP release unexpectedly expanded in November (+1.1% vs. -0.2%). The data does not hold true the economic perceptions of softer consumer spending and faltering confidence, all expected to have an undesirable affect on the fourth-quarter growth and leading to a French recession. However, analysts future readings will bring hopes back to reality. Currently, the surprising data is aiding the EUR a tad!

Forex heatmap

Other Links:
EURs Litany of Reasons to Short

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell