By Dean Popplewell
Investors should remember not to ignore the current economic data despite the market’s obsession with events in Greece. It’s rightly so we should be concerned with developments in the periphery countries, however, becoming stubbornly obsessed with negativity and EUR short positioning is sometimes not very fruitful. It is usually during these times that can end up being the most damaging to ones portfolio. Being myopically obsessed can be expensive, right up there with lack of trading discipline.
The current relevant U.S. data is likely to accentuate the slide in EUR. Today’s U.S. manufacturing, retail sales and inflation data is expected by analysts to remain relatively “modest” and still provide proof that the U.S. economy’s recovery “is slowly muddling” along. Obviously to many, coupling the releases to what’s really occurring in Europe should keep the “big” dollar looking attractive to most. Any upside surprises in the data will only prove to be more favorable for long dollar positioning, while the worse than expected data is likely to be shrugged off by the market. Is this to be a win-win situation? For the present, however, maybe record short positioning will have some influence on the one directional play.
German economic expectations have fallen somewhat aggressively this month after rising for five consecutive releases (10.8 vs. 23.4). It obviously reflects the shenanigans occurring in Greece and the French political results. Collectively, both situations seems to be raising doubts about the commitment from some European Governments to fight the periphery regions debt crisis. Even capital markets is beginning to hear the dissent amongst the ranks and a bit more vocalization from Central Bankers. Once dealers smell blood, they are like rabid animals. Just see what they are doing to the periphery yields. Breaking down the German releases, the market is content in using the forward looking ZEW component to reverse the German GDP gain (+0.5 vs. -0.2%) in the single unit this morning. It seems that investors remain content to sell “this” persistent jump in the EUR.
If the single unit cannot rise on good news, like this morning’s German GDP print, solid demand and despite the speculative short positioning that has been somewhat covered and reversed at these lower levels, then these “quick” spec longs must be a tad concerned with their current positioning. Ever since late last week the market has slowly been reversing their short EUR position hoping for a quick uptick. Price action again has been mostly one directional and that’s not higher.
If U.S. data decides to put a choke hold on the EUR later this morning, a run on the 1.2790-1.28 barriers does become a market option or target capable of squeezing some of the weaker spec longs out of their positions. The techie analysts see the 30-day upper and lower bolli-bands converging, which would suggest a “heightening in statistical volatility.” Price movement below 1.30 has lacked volatility, in fact it has been pedestrian in nature. The markets positioning is backed by tech analysts who still see the single currency wanting to trade higher, back to yesterdays top north of 1.29. However, Euro-zone bond spread widening would suggest that the EUR is far more comfortable trading lower for now!