Monday November 29, 2004 - 11:20:37 GMT
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FOREX: US OPEN MARKET POINTS 11-29-04
Euro-Dollar: Back to Range?
So much for a nice quiet week. The EUR/USD managed to rise an astounding 3 big figures (300 points) last week despite the fact that most US trading desks were on skeleton crews from Wednesday onward and eco news was essentially non-existent. The pair was propelled upward by relentless momentum buying and escalating geo-political fears. As the beginning of last week, ominous comments from the Bush Administration regarding Iran’s nuclear proliferation program spooked an already nervous FX market sending the pair to record highs.
Unlike Iraq, however, Iran will not be an easy target of attack for US. As OPEC's second largest crude oil supplier the country enjoys a myriad of trading relationships, most notably with China. Recently, the two countries signed a 25 year deal valued at $100 Billion to develop the giant Yadavaran gas field in Iran. China needs Iran’s oil and gas for its every growing energy needs. Iran in turn needs China’s manufacturing know how to supply its expanding base of young consumers. Presently Iran and China collaborate on over 100 projects including construction of Teheran subway and a 30,000 unit auto manufacturing plant. Thus China is likely to view any US saber rattling against Iran with extreme concern. Last week’s “mistaken statement” by Chinese monetary policy member Yu Yongding, that China cut its inventory of US Treasuries due to decline in the dollar, spurred further losses in US bond and FX markets taking EUR/USD above the 1.3300 handle for the first time ever. Although, the statement was quickly retracted by Mr. Yu its message was abundantly clear. Should US pursue a unilateral military policy against Iran, China will exert whatever economic means necessary including a rapid decline in the greenback to dissuade US from such action.
Fortunately, as this week came to a close the geo-political tensions appear to have receded. Iran has agreed to what Western diplomats hope is a comprehensive suspension of all activities that could yield fuel for nuclear weapons. In exchange, France, Britain and Germany have offered on behalf of the EU a package of economic and political benefits and a promise to build a light-water nuclear reactor that would be more difficult to use for purposes of weapons manufacture.
As the Iranian crisis defuses through diplomatic resolution, the EUR/USD rally is likely to find pause this week as traders refocus on economic data. With US ISM manufacturing and non-manufacturing surveys expected to stabilize at high levels and the possibility of strong November jobs report at the end of the week, the dollar may stage a counter trend rally and test the 1.3150 support level. However, we doubt that pair has made definitive intermediate term highs just yet, as our proprietary Speculator Sentiment Index still shows most traders are trying to find the top in the anti-dollar rally. Most notably, as of the end of last week the USD/CHF positions stood above the critical 3.0 levels indicating too many dollar bulls. Therefore, the pair may likely bounce in a range between 3150-3350 this week, consolidating its recent gains before resolving direction once again.
FX Spot Overnight
- EUR oscillates around 3250 consolidating last week’s gains
- JPY targets 103 as buyer finally show up
- GBP sells off to 8860 as mortgage lending declines to a 4 year low
- CHF treads water around 1440
- 12:00GMT – (8:00 AM EST) CAD Current Account (Q3) Expected $8.9B, Previous $10.4B
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