Thursday October 21, 2004 - 09:36:04 GMT
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Forex: US OPEN MARKET POINTS 10-21-04
Despite mixed Euro-zone data in which French Consumer Spending was much weaker than expected (-0.6% vs. 0.8% projected) Italian Consumer Confidence rose to a yearly high of 103.7, and the EZ Trade Balance printed only €3Bn vs. €7.5Bn expected, EUR/USD scaled new 7 month highs in overnight session on wave upon wave of relentless buying. As euro bears growl in fury and frustration watching their losses mount minute by minute the central question facing the FX markets tonight is why aren’t we seeing even a small retrace in this 5 day uptrend that has already taken the pair 250 points higher?
It’s clear that euro strength isn’t coming from any EZ economic data but rather from a massive shift in market psychology that has turned decidedly dollar bearish since Monday’s TICS report. The TICS data showed a very disturbing trend of smaller and smaller capital account surpluses which have contracted from $73Bn/month just three month ago to only $59Bn/month in the latest period. Set against the backdrop of ever widening Trade Balance deficits (-$54Bn in August) this trend in smaller Capital Account surpluses puts the greenback into a very precarious position with traders now abandoning the unit as fears grow that US will not be able to finance the Current Account deficit much longer.
Adding fuel to the fire is the expanding speculative short position in the EUR/USD pair. According to our proprietary Speculative Sentiment Index (SSI) euro shorts have been growing into this rally, setting themselves up for a massive squeeze. Finally, the USD bulls will find no interventionist help from ECB which in the wake of $55/bbl oil seems to be more pleased with the deflationary effects of a higher euro than with the possible negative ramifications on the region’s export sector. Thus, we may need to approach the 2700 level which would force the majority of USD bulls to cover their losses at a substantial cost, before we finally see the retrace that so many traders have been anticipating for so long.
FX Spot Overnight
- EUR takes out the 2650 level as shorts continue to be squeezed
- JPY breaks the 108 handle on global dollar bearishness
- GBP vertical move through the 8300 handle as Retail Sales spikes 1.0%
- CHF comes within touch of 11 year lows at 2150
Upcoming Events
12:30GMT – (8:30 AM EST) CAD Retail Sales m/m (AUG) Expected 0.1%, Previous 0.5%
12:30GMT – (8:30 AM EST) CAD Retail Sales Less Autos m/m (AUG) Expected 0.3%, Previous 0.3%
12:30GMT – (8:30 AM EST) USD Initial Jobless Claims (OCT 16) Expected 345K, Previous 352K
14:00GMT – (10:00 AM EST) USD Leading Indicators (SEP) Expected -0.1%, Previous -0.3%
16:00GMT – (12:00 AM EST) USD Philadelphia Fed Index (OCT) Expected 18, Previous 13.4
12:45GMT – (8:45 AM EST) US Fed's Poole Speaks at St. Louis Conference on Productivity
14:00GMT – (10:00 AM EST) US Fed's Bernanke Speaks on Oil and the Economy
17:30GMT – (1:30 PM EST) US Fed's Bies Speaks about Supervision in Connecticut
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