Wednesday June 11, 2008 - 10:18:08 GMT
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Forex Research - Dollar Consolidates After Two Days of Gains-1.50 Possible Target?
Dollar spent most of the night on either side of the 1.5500 level against the euro
â€¢ Japanese Yen: Q1 GDP better but yen has no reaction
â€¢ Euro: French CPI hotter than expected
â€¢ Pound: Clipped by weak employment data
â€¢ Canadian Dollar: Capacity Utilization on tap
â€¢ US Dollar: Beige Book key event risk today
Dollar spent most of the night on either side of the 1.5500 level
against the euro as it consolidated its gains after recording its
biggest two day rally in nearly 3 years. On a night when the European
economic calendar offered only French CPI data, trading flows
alternated between bargain hunters buying euros below the 1.5500 figure
and euro shorts selling any rally above that level looking to push the
pair closer to the 1.5000 zone.
1.5500 has been the key measure of balance over the past several weeks
of volatility and continues to be one tonight as currency traders
grapple with the question of whether ECB will actually follow through
on its promise to hike rates in the near future. Higher energy costs
have no doubt elevated inflation reading throughout the region,
strengthening the central bankâ€™s hawkish resolve. However, economic
conditions in southern Europe are far more fragile than up North and
any further tightening of credit may tip those countries into a
recession. Little surprise then that todayâ€™s Wall Street Journal
reports on Spanish, Portuguese and Italian worries about a possible ECB
rate hike next month while Juergen Starkâ€™s denies to Bloomberg that the
ECB has signaled it will raise interest rates again.
No doubt ECB officials would like to keep their policy options open but
we believe that they will abstain for at least another month to
determine if the recent spike in oil prices is sustainable or not. If
oil recedes off its recent record highs the ECB board members will most
probably keep rates at 4%.
Cable meanwhile was clipped after the release of worse than expected
labor market data as claimant count rose to 9.0K, unemployment rate
ticked up to 5.3% and wages rose at 3.8% versus 4.1% forecast. Overall
the UK employment data painted a clear picture of a stagnating economy
that appears to be vulnerable to further slowdown.
Under such conditions its is difficult to imagine the BOE actually
raisings rates, despite strong inflationary pressures from rising fuel
and food prices. With PM Brownâ€™s Labor government already sinking in
the polls, more rate hikes are likely evoke a massive wave of protest
from the British public. Therefore at best UK monetary authorities will
attempt to keep rates steady as a countermeasure to inflationary
pressures, but if economic conditions deteriorate further the pressure
on Mr. King and company to ease will become palpable.
Sterling recovered almost all of its pre-release losses after bargain
hunters below 1.9500 level swooped in the aftermath of the news.
However, the unit remains vulnerable on the crosses and could weaken
even more if upcoming consumer data proves disappointing as well.
In the North American session today the key event will be Fedâ€™s Beige
book which will give traders a read on current conditions across the US
economy. Any serious signs of slowdown will undermine Dr. Bernankeâ€™s
comments last night and could put further pressure on the dollar as the
day wears on.
EURUSD 1.60 or 1.50? Join us in EURUSD Forum
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