March 7, 2005
By Boris Schlossberg strategist@dailyfx.com
Yahoo Finance
"There is crisis among consumers, " notes an Italian supermarket executive and we can hardly fault him for the dramatic phrasing of his words. Tonight's horrid Euro-zone Retail PMI results which printed at 47.3 versus expectations of 49.6 confirm that European consumers are in a near state of paralysis, frozen in fear over bleak employment prospects and ever rising oil costs. With both German and French unemployment reaching double digits while oil trades above $50/bbl, European consumers have little choice but to retrench. The data squashes hopes of European governments that recent tax cuts and a pick up in export growth would spur spending. February's numbers mark the second month in a row and 6th month out of 7 that Retail PMI has registered results below the 50 percent expansionary level.
In response to the data the EUR/USD declined but only slightly as euro bulls kept the bid, heartened by Friday's 120 point NFP rally. However, the key question as we approach the US session is will the euro bulls be able to preserve their hard won gains much longer? One factor in their favor is the prospect of a record US Trade deficit expected to reach $67 Billion. But the deficit data will not be released until Friday and until then the euro longs will have little fundamental news except for Wednesday's German Industrial Production report, to support their case. Weighing further against the prospects of a euro rally in the new Commitment of Traders report from CME which showed a massive increase in euro long positions from 9k the week before to 48K this week - back near levels observed last December as euro made its top.
Just as Friday, we felt the dollar was set up to fail unless it significantly surpassed market expectations, so today we believe the euro has little upside left against the greenback as each currency is hampered by its own set of problems. For the time being 1.3000-1.3250 range predominates but should the euro convincingly take out the 1.3300 figure the momentum would clearly be with the euro bulls regardless of woeful Euro-zone fundamentals.
FX Spot Overnight
# EUR slightly retraces some of Friday's gains as Retail PMI prints weak
# JPY targets 105 in quiet trade
# GBP dips below 9100 seeing strongest selling of the night
# CHF consolidates at 1700
Upcoming Events
# 13:30 GMT - (08:30 AM EST) CAD Building Permits m/m Jan Expected -2.0% Previous 1.6%
http://biz.yahoo.com/fxcm/050307/1110194283_38098_1.html