Euro Forecast and AUD Trade News Opportunity

Monday, December 1, 2008

Bearish Euro

As I stated before bearish view on EUR so far proving the correct one as the single currency headed sharply south across the board into the end of the month fix on Friday. The first couple of days this week will prove to what degree this was simply a result of end of the month effects and a revaluation of the Russian ruble or whether we are setting up for new series of declines. One interesting note on the German employment data out on Friday: the German unemployment rate of 7.5% remains at all-time lows since reunification. This really shows how far the German economic cycle is lagging the US cycle, where unemployment already began ticking up well over a year ago. A couple of reasons for this are that German labor markets are terribly inflexible compared to the US, and that the German export machine was still enjoying strength on the strength on exports to emerging markets until this summer, as emerging markets were the last to feel the pain as the global economy put on the brakes. Considering that emerging markets are now feeling the worst of the pain, we of course wonder what this will mean for Germany, which will feel plenty of pain from a steeply contracting manufacturing and export sector, even if it didn't suffer from asset bubbles similar to the rest of the world, including other nations in the EuroZone. The German Retail Sales number for October out this morning looks awful, but some of the extra weakness may be due to falling petrol prices.

Trade News Recommendation

A worrying sign for those looking to China to save the world economy, China's manufacturing PMI nosedived - from 44.6 in October to 38.8 in November. The export orders component of the PMI survey came out at an astounding 28.2, probably the lowest we have ever seen any component of any PMI survey. This is brutal stuff for the Chinese authorities to contend with. One way to trade this news in G7 is with a short AUD position, as AUD has founds some support recently on stabilizing commodities and rallying equities. Those supports could come under threat this weak and worries over China could add to the bad vibes for the Aussie. Beware that tonight, the RBA is set to adjust their cash target once again. The baseline expectation is for a cut of 75 bps, to bring the rate to 4.50%.


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