Currency Orders Signal Euro Downside Limited, Commerzbank Says

Even if the euro resumes falling against the U.S. dollar, the common currency probably won’t reach another 12-year low anytime soon, according to Commerzbank AG.

That’s what measures of the density of daily flows of client buy and sell orders in the currency from Commerzbank show.

While the euro rebounded this morning, as dollar demand dimmed after a report showed sales at U.S. retailers were little changed in April, the net bias in orders was for more selling of the common currency as of 9 a.m. Frankfurt time. That bias evaporates before the euro would weaken to $1.0458, its more than 12-year low reached March 16, the flow data show, meaning traders expect no imminent breach.

“Today, as well as for the past couple of weeks, we do have a bias toward selling at these levels,” said Thu Lan Nguyen, a currency strategist at Commerzbank in Frankfurt, referring to the euro trading around $1.125. “There is again buying interest, with bumps in the buy density, around $1.10-ish and around $1.05. That shows where a downward move becomes more limited and where room might run out.”

The euro gained about 1 percent versus America’s currency Wednesday, moving to $1.1321 at 9:47 a.m. New York time. In earlier trading in Europe the common currency was a low as $1.1203. It has risen 8.2 percent since the multi-year low reached in March as interest rates in Europe have rebounded.

“In an increasingly electronic trading-driven market, order flows have particularly gained attention as a short-term determinant of exchange-rate movements,” Nguyen wrote in a note published Wednesday. “Based on this theoretical finding we estimated the state of Commerzbank’s order book on a daily basis using our in-house order flow information and analyzed its information content for predicting the direction of” the euro.