Tuesday February 8, 2005 - 12:04:17 GMT
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FOREX: US OPEN MARKET POINTS 02-08-05
Yen Offers Little Joy
Japanese data continued to signal economic weakness as December Household Spending registered the worst results in 18 years falling 2.5% from November and 3.5% from a year earlier. While yen bulls instantly manufactured excuses suggesting that the survey underreported true consumer demand, the bleak reality of the matter is that Japanese economy has been in a severe slowdown for the past 3 months. Today’s one thin ray of sunshine was the Eco Watcher’s survey which perked up from yearly lows of 44 by printing 45. In the Outlook survey, employment component jumped 4 point higher indicating that consumers may be a bit more optimistic about employment opportunities. However, in Japan just like in the US the issue is not jobs but wages. With wages increasing only 2 times out of the last 44 months, it’s unlikely that Japan will be able to generate enough domestic demand to resume growth. As usual the country will have to rely on exports to expand the economy and that may be a lot harder to do as it struggles to compete against China and Korea in ever more sophisticated value added markets.
One large positive dynamic for the yen going forward is the slowly declining price of oil. Buoyed by warm weather in Northeastern United States and relative calm in the Middle East, oil dropped to a one-month low yesterday. Although, Japan must import almost all of its oil supply, the country is extremely energy efficient. The true value of crude’s decline to Japan lies in the fact that it creates more disposable income in US – Japan’s number two export market. Thus lower oil, leads to more US demand and therefore higher Japanese growth.
Turning to Europe, the euro struggles against the greenback as the market continues to believe the Bush Administration regarding the reduction of the US budget deficit. On the economic front German Industrial Production reported better than expected 1.2% rise indicating that EZ manufacturing may be turning the corner. Given the absence of any US news-flow today, the positive EZ eco data may offer enough support to the currency to stage a small counter trend rally against the greenback after 5 consecutive days of declines.
FX Spot Overnight
- EUR struggles continue despite decent IP data
- JPY targets 106 as Household spending reaches 18 year lows
- GBP dips below 8600 though BRC data mildly positive
- CHF moves to 2250 shadowing the euro
13:30GMT – (08:30 AM EST) CAD Housing Starts (JAN) Expected 230K Previous 234K
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