Monday October 18, 2004 - 09:42:46 GMT
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Forex:US OPEN MARKET POINTS 10-18-04
Breakout of Fake-out?
Another Friday, another wildly volatile session in FX. The EUR/USD traded in a 130 point range viciously whipsawing most momentum traders by first dipping 40 points lower after US Retail Sales printed 1.5% vs. 0.7% expected, only to then make a sharp U turn and rally 100 points in 10 minutes all the way up to 1.2480. Although many analysts attributed the move to markedly weaker U of Michigan Consumer Sentiment numbers (87.5 vs. 94 consensus) and Industrial Production data (0.1% vs. 0.4% expected) the true culprit was probably a major hedge fund which carried out a massive sell program in USD/CHF 10 minutes after the US Retail Sales data was released. The tactic, known as a “drive-by” involves a rapid, simultaneous sweep of all the Interbank offers which quickly drained all the liquidity out of the market causing the pair to drop over 100 points in a matter of minutes. The EUR/USD which trades inversely to USD/CHF naturally followed suit vaulting 100 points higher in the same period of time. After all of Friday’s positioning ended the central question facing the FX market was – breakout or yet another fake-out?
Given the underlying fundamental weakness in the euro – the natural inclination is to bet that the grinding range trading of the past 7 months in EUR/USD will likely continue albeit at higher levels of 1.2300- 1.2500. However, today’s Treasury Capital International System (TICS) data due at 13:00 GMT has the power to truly damage dollar bulls should it report substantially smaller surplus than last months figure of $64Bn. In light of last Thursday’s massive -$54Bn Trade Deficit any TICS number less than $60Bn would be highly worrisome to the market as it would undermine the basic USD bulls argument that Current Account deficits do not matter because they are offset by Capital Account Surpluses. We believe that today’s TICS data will match last months results providing some temporary support for the dollar. However, if TICS data misses it will set a very negative tone for the dollar for the week and what initially appeared as yet another fake-out could indeed become a breakout.
FX Spot Overnight
- EUR hangs at 2380 awaiting TICS
- JPY tries to test 109.00 but repelled back to 109.30
- GBP seesaws in 20 point range
- CHF spike to 2355 but quickly sold down to 2320
12:30GMT – (8:30 AM EST) CAD Int'l Securities Transactions (AUG) Expected C$1.5B, Previous C$3.7B
13:00GMT – (9:00AM EST) USD Net Foreign Security Purchases (AUG) Previous $64.0B
17:00GMT – (1:00PM EST) USD NAHB Housing Market Index (OCT) Expected 68, Previous 68
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