Thursday November 11, 2004 - 21:08:41 GMT
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Forex: US Auto Sales Expected To Retrace In October
DailyFX Fundamentals 11-11-2004
By Kathy Lien, Chief Strategist of www.dailyfx.com
US Auto Sales Expected To Retrace In October
Germany Grows At Weakest Pace Since Rebounding From Recessionary Conditions
Swiss Franc Benefits From Uncertainty In Middle East
With many US foreign exchange traders off for the Veteran’s Day holiday, trading in the EURUSD has been relatively quiet. The dollar remains weak against the euro as dual forces prevent the pair from moving in any concerted direction. According to FXCM’s latest Speculative Sentiment Index (http://www.dailyfx.com/ssi.html), there is approximately one short for every one long position in the euro at this point. This compares to last Thursday, where there was 2.73 short positions for every one long position. The total amount of positions remained generally unchanged. This illustrates the indecisiveness of the market and could foreshadow more two-way price action at current levels. Although short-term speculators are being spooked by the ECB’s recent comments, medium and long-term traders still find just cause to sell the dollar despite weak European economic data. Growth in Germany, the Eurozone’s largest country slowed to 0.1% in the third quarter from a downwardly revised 0.4% in the second quarter. This has been the weakest quarter of growth since the country came out of recession in the third quarter of 2003.
After some brief excitement, dollar weakness continues against the Swiss franc. There is a significant amount of US economic data scheduled for release tomorrow. The most important of which will be US retail sales. After the spectacular gains in September, October retail sales are expected to grow at a much slower pace. The surge in consumer purchases was primarily due to a pickup in auto sales. Excluding the more volatile auto component, retail sales are expected to increase from by the same pace in October. Gasoline prices look to have contributed as crude oil surged in October to record levels, hitting $55.67 a barrel on October 25th. Additionally, personal consumption was also seen higher by 0.4 percent compared with a 0.2 percent increase in the previous period. However, the sustainability of this upward move may be limited as weakness was seen in personal income growth. For the quarter, personal income advanced a mere 0.2 percent with little change in disposable income. This may throw a kink in the system as smaller increases in disposable income ultimately result in restrained individual consumption. All in, dollar bulls will be hoping for an upside surprise to confirm any economic expansion in the world's largest economy. Meanwhile the Swiss franc has benefited from some modest safe haven buying following the death of Palestinian leader Yasser Arafat.
The British pound weakened for the second consecutive day against the US dollar. According to the latest FXCM SSI report, the ratio of longs to shorts in the GBPUSD is currently 2.05, which is within the extreme +/- 3 level. The index has been pretty volatile as of late, having only recently flipped into net short territory (-1.61) and is now back in net long territory. Shorts decreased -53.7% while longs increased 53.5% over the past week. A -12.85% decline in open interest indicates that speculators are decreasing exposure in the pair as it meets historical resistance at 1.8600.
The US dollar retraced some of Wednesday’s spectacular gains against the Japanese yen. Japanese machinery orders, which tend to be volatile, fell 1.9% in September. Later today, we are expecting Japan’s third quarter GDP report. Growth is expected to increase slightly by 0.5% from last quarter’s 0.3%. The modest increase will most likely come on the back of accelerated consumption, with capital expenditures likely to make a larger contribution this quarter. Companies are investing more profits in new factories and equipment, which is helping to stimulate growth. However, net external demand is expected to be a negative for the month, keeping it only 0.2% above last quarter. Export growth is a concern as rising oil prices are expected to slow consumer spending in the US and China, which will have an adverse effect on Japanese exports and GDP.
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