What is FX Daily Report
What Is FX: Euro Continues Its’ Steady Rise
February 28, 2012
8:30 AM EST
Good morning What Is FX traders; overnight data was supportive of the euro as risk appetite continues to rise, and USD desires are on the retreat. Germany released its’ Consumer Confidence Survey, which rose to 6.0, continuing a 6 month rise. However, it was forecast to come in at 6.1 and therefore missed expectations by a tick. As What Is FX looks a bit deeper beyond the headline, the component parts were a bit softer than expected as well. The income expectations portion of the index was the only art to rise strongly, to 41.3 from 34.1. However, the economic expectations fell to 5.9 from 7.5 in the previous reading. Rounding out the internal numbers was a drop in the proprietary buy index from 41.8 to 39.2. As we witness a pause in the increase in German sentiment, we realize that the bounce in economic activity that began last fall seems to running out of steam. there was an additional wrinkle which seemed to attract some attention in the London session, and that is a ruling from the German High Court about the constitutionality of the panel that was set up to decide on eurozone aid. Specifically, it was noted that the panel can only decide on bond purchases in the secondary market, and not have authority to buy direct EZ bonds themselves. This assisted in a euro pullback from 1.3460, but has not entirely dampened the euro bulls. Currently, we are making a run at that 3460 high, so we’ll see what becomes of it.
Also What Is FX notes on the European docket today, the commencement of the LRTO. No doubt there will be word leaking out about it’s size, but official results aren’t due until tomorrow. Remember, the first one was just shy of a 1/2 trillion (not billion as I mistakenly wrote yesterday), and it caused a significant drop in the euro over the ensuing weeks, as it is basically akin to QE. We have mentioned before that the basic size of the first uptake was enough to be an immediate backstop for bank losses against the threat of a Greek default, and then some. Another operation of approximately the same size, would be “roughly” enough to provide a firewall against the risk in Greece, Spain, and Portugal together.
Now even though that should be enough to prevent bank’s exposure from crippling the region, that does not mean that a default would become a non event. Surely there would be a strong reaction. But in the meantime, simply knowing that the firewall is in place may be enough to prove supportive to the euro and risk assets as we see a continued press toward 1.3500 today. Especially if equities are supportive of the who shebang, we should see a continued lift. Don’t forget it is “Turnaround Tuesday”, and we haven’t seen a turnaround in a few weeks.
Also, it is interesting to note that after What Is FX mentioned Oil being a threat to risk appetites from it’s run up so far this year, that the 2 day pullback in futures which started on Monday has given investors some breathing room and is supportive of stocks today.
Coming up we have a few pieces of US data, specifically durable goods, consumer confidence and the Richmond Fed. Should these meet expectations or provide any bullish surprises, it will likely continue to lift the euro today.
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What Is FX February Results: +612.0 pips.
What Is FX Year-To-Date Results: +1,288.0 pips