Monday November 22, 2004 - 11:23:40 GMT
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FOREX: US OPEN MARKET POINTS 11-22-04
Dollar - G-20 Affects Nothing
As John Snow charged that US Current Account deficit was partly the fault of stagnant European economies while Gerhard Shroeder attacked US Budget deficits as the primary cause of the dollar decline, blame seemed to have been the only active policy adopted by the G-20 meeting. After all parties departed without producing a concrete communiqué on how to control the recent volatility, FX market promptly resumed the same old price action with EUR/USD trading above the psychologically important 1.30 level while USD/JPY flirted with breaking the 103 barrier.
Only a month ago the 103 handle in the USD/JPY seemed certain to invite MOF intervention. Yet with 106, 105, 104 and now 103 falling like a set of dominos, many traders are starting to wonder if Japan will intervene at all. Over the week-end comments from Japanese officials have become more urgent. "I completely agree with the view of the president that a strong dollar has a good impact on the U.S. economy and is also important for the world economy," said Japanese Prime Minister Junichiro Koizumi. MOF’s Hiroshi Watanabe (known as Mr. FX in Japan) added,” Last week's foreign exchange moves... the dollar's move against the yen, euro and others, have been very rapid. Looking at recent economic data from the United States, Europe and Japan, I get the impression they do not reflect fundamentals. They are deviating from fundamentals. We are carefully watching the situation. We will take decisive action if needed."
In the past few years, Japan’s mix of trade has changed markedly. Fully 50% of Japan’s exports now take place within Asia with Korea, Hong Kong and China serving as major trading partners. This intra-Asian trade is settled in yen, partly obviating the need for currency intervention. Yet as the recent Japanese economic slowdown indicates, the strong yen is clearly having a negative impact on its export sector. The reason for hesitation, according to some analysts, is that Japan may not want to act unilaterally preferring to develop a global consensus in order to justify intervention this time. With nearly $1 Trillion of US fixed income assets on its books, Japan has more than enough incentive to see a stable US dollar. Therefore, as USD/JPY approaches parity we continue to believe that MOF will be forced to act.
FX Spot Overnight
- EUR range trades at 3035 as euro stays well bid
- JPY approaches 103 again and threatens to take it out
- GBP trickles down to 8540 as soft eco data still hangs over the unit
- CHF sits at 1620 in sync with euro
- 13:30GMT – (8:30 AM EST) CAD Retail Sales m/m (SEP) Expected 0.1%, Previous 0.8%
- 13:30GMT – (8:30 AM EST) CAD Retail Sales Less Autos m/m (SEP) Expected 0.4%, Previous 0.9%
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