Euro Holds 1.5100 As Data Continues to Shine, Where is the Top?

Talking Points

• Japanese Yen: Bounces to 106.50
• Euro: Holds 151.00 as labor retail data prove supportive
• Pound: No event risk today
• Swiss Franc: employment expands for 11th quarter in a row
• US Dollar: GDP on tap

EURUSD made itself comfortable at its new home above the 1.5000 level, holding on to the 1.5100 figure for most of the night. The news out of the EZ continued to be constructive as both labor data and Retail PMI numbers demonstrated that the underlying fundamentals in the 15 member region remain sound.

German unemployment declined more than expected dropping by -75K from -48K forecast, as EZ largest economy continued to expand. More importantly German Retail PMI readings recovered from their sharp drop last month of 44.2 to end up above the 50 boom/bust level once again printing at 52.1. Overall, the EZ Retail PMI numbers stood at 52.4 – comfortably in expansion territory.

The overnight economic news goes a long way towards explaining ECB’s rather sanguine attitude towards growth. With labor markets continuing to generate jobs and with consumer demand in the region relatively healthy, ECB sees little need to lower rates anytime soon. As we’ve noted before, as long as EZ employment environment remains supportive, the ECB will have all the political protection it needs to maintain its hawkish policy.

Nevertheless, with EURUSD trading at such lofty highs the pair is overbought on a short term basis, as popular sentiment has clearly shifted to the euro. When the demise of the dollar becomes the top story on the Drudge report, a near term top in the EURUSD is not far behind. Yet any retrace in the pair is likely to be corrective and short lived. For the time being the fundamental story stands squarely on the side of euro bulls and if US data shows no signs of improvement, the pair could easily move higher after a short term pause.

To that end, today’s US GDP numbers could provide some fireworks in today’s North American session. The market expects an upward revision to 0.8% - still a paltry rate of growth - but slightly better than the initial 0.6% read. If the data surprises to the upside, it may quell some of the doom and gloom forecasts of an imminent recession that dogged the greenback. If, however, the news is even worse than the bears believe, the greenback could come under fresh selling pressure stoking fears that the recession is already here as EURUSD will continue its dally journey to new highs.

After 1.50, what’s next for the Euro?