Wednesday February 16, 2005 - 10:15:41 GMT
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FOREX: US OPEN MARKET POINTS 02-16-05
All Eyes on Alan as Euro Hangs Tough
The TICS data beat expectations - fully covering the $56 Billion Trade deficit with a $61 Billion surplus in December. Moreover, for the year foreigners purchased a net $821.8 Billion in U.S. securities against a trade deficit of $617.7 Billion sweeping aside any concerns regarding deficit financing. So why is the EUR/USD stubbornly trading above the 1.3000 level on the eve of Mr. Greenspan’s semi-annual Humphrey Hawkins testimony? The other US deficit and marked rise in global tensions in the last 24 hours have kept the bid in the pair despite more favorable fundamental news-flow for the dollar.
The other deficit is of course the US budget deficit which is projected to exceed $400 Billion for the second year in a row. The FX market will carefully scrutinize Mr. Greenspan’s comments on this subject today to ascertain his confidence in Mr. Bush’s promise to halve the deficit in the next 5 years. The Chairman is a well known deficit hawk who persuaded both Bush I and Mr. Clinton to curb deficit spending during their respective tenures.
We remain dubious that the present Bush administration will be able to achieve much progress in the goal of deficit reduction. Unlike the two past Administrations which presided over peace, Mr. Bush finds himself engaged in a full scale military conflict in Iraq subject to all the concomitant economic and political costs that cannot be reduced at will. Furthermore, the shocking murder of former Lebanese Prime Minister Rafik al-Hariri on Monday and the subsequent recall of US Ambassador from Syria have ratcheted geo-political tensions in the region once again. If the situation escalates requiring even more US involvement, all of Mr. Greenspan’s carefully chosen words will be rendered moot as the markets will have to grapple with the immediate political and economic implications of such scenario. However, the chances of such extreme events unfolding are remote. Most likely the saber rattling will soon subside and the markets will refocus on economics. Nevertheless, it will be important to observe how Mr. Greenspan’s testimony plays out against the new swell of fury in the Middle East.
While the euro maintains it tone against the greenback, the yen suffers from yet another night of weak data as Japan’s GDP misses estimates registering a loss of –0.1% versus expectations of 0.1% gain. Not surprisingly personal consumption declined –0.3% - a trend that was evident in many Consumer Confidence surveys preceding the release. However, more noteworthy was the massive –11.4% decrease in public investment marking the 3rd consecutive double digit decline of this component of the report. If Japanese economy can stabilize and resume organic growth it’s underlying fundamentals will actually substantially improve as economic expansion will be driven by private capital spending rather than artificial government demand. In the meantime, however the yen trades lower against the dollar and especially the euro.
FX Spot Overnight
- EUR holds 1.3000 ahead of Greenspan testimony
- JPY above105 as GDP contracts
- GBP above 8900 employment data shows eco strength
- CHF tagging 1850 as geo-political risk dollar weakness help
- 13:30GMT – (08:30 AM EST) USD Housing Starts Jan Expected 1930K Previous 2004K
- 13:30GMT – (08:30 AM EST) USD Building Permits Jan Expected 2000K Previous 2021K
- 13:30GMT – (08:30 AM EST) USD Housing Completions Jan Expected ------ Previous 1946K
- 14:15GMT – (09:15 AM EST) USD Industrial Production Jan Expected 0.3% Previous 0.8%
- 14:15GMT – (09:15 AM EST) USD Capacity Utilization Jan Expected 79.3% Previous 79.2%
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