Wednesday October 27, 2004 - 09:26:25 GMT
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Forex: US OPEN MARKET POINTS 10/27/2004
Official Warning: Decline Must Stop!
The dollar decline is finally eliciting some official comment as both Japanese and European policy makers weigh in on the move that has taken the EUR/USD up 500 points and USD/JPY down 400 points in a matter of 2 weeks. In Japan Hiroshi Watanabe, vice finance minister for international affairs, who is quickly becoming known as “Mr. FX” in Japan, bluntly noted yesterday, "If [the USD] falls too quickly it would have a serious impact on the Japanese economy and its industries - if the pace of the fall is not justified by fundamentals we will take action- if the pace of the fall continues then it is not so welcome." This warning is as subtle as a sledgehammer that BOJ will not tolerate prices much lower then the 106 level. Yet the market barely budged on Mr. Watanabe’s comments, stubbornly trading below the 107 handle. The core of JPY’s recent strength stems from the market’s utter conviction that the Chinese will soon revalue the CNY from its present, artificially low rate. Such a move would be very beneficial to Japan which sells an increasingly greater share of its exports to China and aggressively competes with China in North American and European markets. However, we are highly skeptical, that China will do anything more than offer vague assurances. Once the market realizes that Chinese are stalling, Mr. Watanabe may not have to say another word. Meantime traders continue to ignore his warning at their own risk.
Meanwhile in Europe, Bundesbank President and ECB board member Axel Weber, said on Monday that the euro alone cannot withstand the burden of a declining dollar. He made an especially pointed reference to the ballooning US budget deficit and noted that the US Current Account imbalances could not be resolved by “currency adjustment alone”. At 1.2500 EUR/USD and 108 USD/JPY export dependent Europe and Japan begin to experience economic hardship as their products become more expensive in world markets. Therefore, it is not surprising to see officials trying to stall this “anti-dollar” rally before it reaches crisis proportions. Today’s US Durable Goods number which is expected to print 0.5% vs. –0.3% last month may offer them some temporary reprieve, but dollar jitters will not cease until the US election is resolved after November 2nd. For the time being, officials could only hope to restrain the euro and the yen from making yearly highs.
FX Spot Overnight
- EUR tests 2730 support and consolidates at 2760
- JPY mired below 107 despite official warnings
- GBP largely unfazed by lackluster BBA data consolidating at 8350
- CHF retraces all the way to 2050 but quickly fades towards 2000
12:30GMT – (8:30 AM EST) USD Durable Goods Orders (SEP) Expected 0.5%, Previous –0.3%
12:30GMT – (8:30 AM EST) USD Durable Goods Orders ex-Transportation (SEP) Expected 0.4%, Previous 2.3%
14:00GMT – (10:00 AM EST) USD New Home Sales (SEP) Expected 1150K, Previous 1184K
18:00GMT – (12:00 PM EST) USD Beige Book
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