Friday December 10, 2004 - 11:23:01 GMT
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FOREX: US OPEN MARKET POINTS 12-10-04
Euro Takes a Dive
Yesterday in late US session all the majors rose against the dollar after the disappointing results of the 10 year Treasury auction. Although the auction drew a respectable 2.68 bid to cover ratio, it generated only 10% of offers from foreign investors and Central Banks indicating that global demand for US capital assets may be waning. The dealers reacted badly to the news and the pound made a vertical move up of nearly 150 points to 1.9300 in very thin late afternoon trading.
Tonight, however, the price action completely reversed itself with dollar shorts continuing to cover positions and book profits for the year end. Dollar bulls also received some support from the mildly negative eco data from France, Euro-zone’s 2nd largest economy, which reported declines in Industrial and Manufacturing Production of –0.7% as the rising euro and high unemployment dampened demand. The French numbers stand in contrast to yesterday’s positive data from Germany, which reported a rise in production despite the strong euro and suggest that French manufacturers may not have been as well hedged. In addition to the French data, the Euro-zone Current Account printed at €5.8 Billion – the smallest surplus in a year - which exacerbated the euro sell- off and pushed it below the week’s low of 3180.
Today’s PPI data from US may push the euro lower still if the release prints materially higher than expectations. Such news would practically assure a Fed rate hike at next Tuesday’s FOMC meeting as the year over year PPI index would then stand at 4.7% or higher. Originally, we thought the Fed may hold off raising rates during the Christmas season (Chairman Greenspan has never enacted a rate hike in December during his tenure) but last months euro rally, yesterdays lackluster Treasury auction participation from foreign investors and strong evidence of escalating inflation may prompt the Fed to break tradition.
The euro, of course, can trade all the way down to 1.30 and still maintain it’s uptrend. As we noted yesterday the likeliest near term scenario is consolidation for the pair within a very wide 1.30-1.35 range as traders digest the recent power move up and focus on a slew of important US economic data due next week.
FX Spot Overnight
- EUR trades through the week’s lows as profit taking accelerates
- JPY blows through 106 as sentiment turns
- GBP nearly touches 9000 handle in the downdraft
- CHF blasts through 1650 despite good Retail Sales data
- 11:00GMT – (7:00 AM EST) GBP Euro-zone OECD Leading Ind. (OCT) Expected 4.75%, Previous 4.75%
- 13:30GMT – (8:30 AM EST) CAD Capacity Utilization Rate (3Q) Expected 85%, Previous 84.6%
- 13:30GMT – (8:30 AM EST) CAD Labor Productivity q/q (3Q) Expected 0.0%, Previous 1.5%
- 13:30GMT – (8:30 AM EST) USD Producer Price Index m/m (NOV) Expected 0.1%, Previous 1.7%
- 13:30GMT – (8:30 AM EST) USD PPI Ex Food & Energy m/m (NOV) Expected 0.2%, Previous 1.7%
- 13:30GMT – (8:30 AM EST) USD Producer Price Index y/y (NOV) Expected 4.7%, Previous 4.4%
- 13:30GMT – (8:30 AM EST) USD PPI Ex Food & Energy y/y (NOV) Expected 1.9%, Previous 1.8%
- 14:45GMT – (9:45 AM EST) USD U. of Michigan Confidence (DEC P) Expected 93.5, Previous 92.8
- 19:00GMT – (2:00 PM EST) USD Monthly Budget Statement (NOV) Expected -$54.1B, Previous -$57.3B
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