Friday February 11, 2005 - 16:01:22 GMT
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The voice of FXstreet.com - Weekly report (7-11/2/2005)
A WEEK DRIVEN BY THE ECONOMIC EVENTS
Well, at least I think that is the question most of the private investors in the foreign exchange market were asking themselves on Thursday. The US trade deficit, though lower than the previous month, came out well below reasonable expectations forecasting a decline of $8bln instead of the real $4bln.
So … was and/or is a weak dollar the solution to the global economic recovery and to the narrowing of the US trade deficit? Well, I frankly have serious doubts that, apart from a political speech, the miracle that is supposed to a weak-dollar policy, will happen.
The fact that a weak dollar would positively impact the global economy is the other point of focus. A weaker dollar will only, no matter how you look at it, create global economic uncertainty, since most of the major trade deals worldwide are USD denominated. So, helping the US in getting weaker against the other currencies, will only result in a global economic slowdown, that, by itself, will result in an US economic slowdown (and that is the funnies thing of them all).
Technically speaking, the weak dollar policy was well supported from strong bearish trends. Those trends, whose lines in some cases were even not touched, provided counter-trend systems not very reliable for almost 2-3 years (on a daily basis). The “sell $ and forget” tactic was well worth using.
So basically, if one tries to look between the lines, the weak-dollar policy (they call it strong-dollar policy…) is more or less the “follow the trend” policy. Basically, just let the market do what they (US politicians) want it to do, subliminarly forcing the market to act and beat those who trade against the trend (including BOJ, ECB (if they ever did something)). Therefore, and from the shadows, the US politicians have been rewarded by a hungry-of-trend market.
Will this situation lat? Not in my opinion. I think we might see further USD weakness in coming months, however it would be very limited asnd the USD should start gaining strength quite steadily soon. As always, my favourite words : time will tell.
This week’s closing levels (at the time of this writing) : EUR/USD 1.2875 (+10), USD/CHF 1.2080 (-30), GBPUSD 1.8655 (-100), EUR/GBP 0.6905 (+45), USD/JPY 105.60 (+170), USD/CAD 1.2405 (-80), AUD/USD 0.7830 (+130), NZD/USD 0.7115 (flat), EUR/CHF 1.5535 (-45), EUR/JPY 136.00 (+205), GBP/CHF 2.2525 (-190), GBP/JPY 196.90 (+130). AUD the solid winner for the week and the YEN the overall loser for this trading week.
Weekly Closing Basis Trading Ideas : Weekly Closing Basis Trading Ideas : long USD positions must be watched carefully on warning signals of further strength for the european currencies. However, the weekly indicators still have the USD as the currency to buy.
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