Currency Markets Calm Despite Abundant Data

Includes: FXE, ITUB, UDN, UUP
by: Ralph Shell

Considering the abundance of data and news thrown at the currency and equity markets today, the currency markets, so far, have been unscathed. Both the Bank of England and the ECB issued statements today. Rates were to remain unchanged and the BOE would defer consideration of renewed quantitative easing until a later date. Critics of these unchanged policies claim the central bankers are much too timid. A crisis is pending and bold actions are required, so the critics claim.

Currency markets are quite apprehensive about the outcome of various European Sovereign debt auctions. Auction results today from both Spain and Italy were successful. According to a report in Market Watch:

"We regard today’s auction as extremely positive, especially as it sends an encouraging sign for the BTP auction tomorrow,” said Chiara Cremonesi, fixed-income strategist at UniCredit Bank (NYSE:ITUB) in Milan. “While it is true that over the last month the shorter maturities have remained well bid, so strong demand at this tenor does not come as a surprise, today’s auction was even better than our expectations.”

Despite the accolades for the market's performance, the bulls in the euro and the pound are unable to recapture ground lost to the bears earlier this week. Unless we get a reversal tomorrow, the weekly charts will still look bearish.

The U.S. retail sales report, together with the first time unemployment claims reports have just been released. Both are shy of expectations. Core retail sales, expected to be a positive 0.3% were a disappointing -0.2%. Total unemployment claims, expected to be 373K, were back up to 399K.

Early this week we felt the composition of the big euro spec short might cause a short squeeze, but this did not occur. Despite the euro sell off the shorts seems complacent. In fact, the open interest in the futures market was up almost 5K contracts, taking the total to 299K. This implies shorts are adding to their positions.

While our longer term view of the EURUSD remains bearish, we still think trades above the 1.28 handle might bring in some buying. Should that happen it would not take too much momentum to see a rally back to the 1.30 level, a level we would consider reestablishing euro shorts.

Currency Markets Calm Despite Abundant DataCurrency Markets Calm Despite Abundant Data
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.