Friday May 14, 2004 - 17:55:27 GMT
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Inflation Warnings Sound Again
The week ended today on an anticlimactic note. The economic data was mildly dollar negative, with the consumer confidence falling short of economistsí forecasts. The market seemed to be positioned heavy on the euro, poised to test the 1.1760 lows from last month. If the data today had been bullish for the economy, we might have seen a knifing through the range bound trading to possibly a 1.17 mark. The Michigan confidence missed its mark though, probably due to sky-high oil prices that have gone north of $40/barrel. This led to some short-covering that squeezed the euro up to 1.19. That level failed to hold, and the euro trickled back another 50 pips. Despite the weak information, the higher CPI and industrial production still indicates that the Fed will hike rates sooner rather than later, to curb the rising threat of inflation. So the likelihood of the market maintaining a short euro position and go bullish on the dollar still seems strong. In other news, earlier today the yen weakened when Japan's opposition party called for Prime Minister Junichiro Koizumi to quit after he missed state pension payments.
Technically Speaking: The slow stochastic is reading 70.14 in euro and the RSI is at 56.54, which is supporting a bid tone with the euro. We believe that the euro is only trading off the cross as of the moment and as eurjpy goes so does euro but we can see 1.1925 holding and a move thru to 1.1750 is still in the cards.
GAIN an Edge: Look to sell the bounce in euro to 1.1925 with a stop loss above 1.1960, our objective is still a break of 1.1750 and an eventual move to 1.1400.
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