Monday October 11, 2004 - 10:36:33 GMT
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FOREX: US OPEN MARKET POINTS 10-11-04
Published By: Boris Schlossberg, Fundamental Analyst
Euro Doesn’t Buckle But Unlikely To Rise Further
Very subdued trading in FX markets tonight as both Japan and US are on national holidays. In Asia Pacific, the Aussie continues its winning ways coming to within 20 pips of the 7400 handle as the market seems pleased with Prime Minister Howard’s re-election. Saturday’s results erased any possibility of regime change and along with last weeks positive unemployment data are keeping the Aussie well bid. Our call on fading the carry currencies was clearly wrong last week and although we are fully prepared to eat crow, we are not willing to chase price here as we believe the Aussie remains highly overbought and vulnerable to any negative eco news.
The yen meanwhile, continues to hone in on the 109 handle despite lackluster economic data last week and oil hitting 53.31 in overnight NYMEX trading. In our weekly piece we pointed out that the unit has decoupled from its fundamentals as market bets on possible revaluation of CNY. Such an event would be very bullish for yen since Japan competes vigorously against China in its export markets and would benefit from any possible CNY appreciation. However, China faces an enormous political task of absorbing millions of rural workers into the new industrial economy. Any appreciation of it its currency would hinder that goal. Therefore, we feel there is practically no chance that China will revalue the CNY any time soon. Nevertheless, fighting the market may be futile at the moment and it may be best to stand aside until this issue is resolved.
Turning to Euro-zone we note that euro is holding its 120 point gain from Friday’s weak NFP number but question how much further the move will advance. Having reported horrible unemployment numbers out Germany last week (27K increase versus 10K expected) which followed a poor showing from France two weeks back (32K increase versus 0K expected), the Euro-zone is hardly a model of strong economic growth. Additionally, the latest IMM Commitment of Traders data shows EUR/USD longs increased from 32.3K to an all-time high of 44.8K. This is a key contrary indicator and therefore its euro bearish as it shows the unit is overbought. Most importantly we believe ECB will not allow euro to appreciate much beyond the 1.25 level as the outcry from EZ exporters – who have been the primary drivers of European growth – will force it to contain any euro rally. In the end, range trading most likely continues albeit at higher levels of 2250-2550.
FX Spot Overnight
- EUR holds 2400 in lackluster holiday trade
- JPY maintains momentum from Friday trading 109.20 as talk of CNY revaluation strengthens
- GBP flat at 7950 as eco data shows largest rise in PPI costs since 1996
- CHF breaks 2500 as geopolitical unrest increases
US Bond Markets Closed for Columbus Day
17:00GMT – (1:00 PM EST) GBP BRC Retail Sales Monitor
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