Wednesday February 23, 2005 - 11:10:31 GMT
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FOREX: US OPEN MARKET POINTS 02-23-05
Central Banks Recant so Euro Retraces
“Very hesitant”, said IFO chief economist Gernot Nerb in describing domestic demand in Germany. Very hesitant indeed. Battered by highest unemployment since the end of World War II and oil prices above the $50/bbl level, the IFO business confidence report registered its first decline in 3 months slipping to 95.5 from 96.7 expected. Although the worst appears to have passed for the German economy, few analysts expect a robust recovery. Thomas Mayer of Deutsche Bank noted, “It’s very much stop and go, but on balance things are improving.”
The disappointing IFO numbers seem to have cooled the euro rally as the pair finally met resistance at 1.3270 and traded down to 1.3205 by the midday of the European session. The decline was also aided by quick backtracking of Asian Central Banks after Bank of Korea clarified its position. It stated that it had not intention of diversifying out of dollars but rather intended to simply add euro inventories to its future reserves. BOJ also chimed in, reassuring the market that it was not diversifying its reserves.
A strong dollar is critical for Asian economies so dependent on export driven demand. Tonight’s data from Japan only serves to underscore that vulnerability as Japanese Merchandise Trade Balance reported markedly lower results of 200.8 Billion yen versus projections of 512.0 Billion yen as exports plummeted on much lower demand for electronics. With Japan now officially in its 4th recession in 12 years, a USD/JPY rate of 100 or lower would be detrimental to the country’s chances for a rebound.
Meanwhile, the sentiment fueled euro rally seems to have run its course for now. Today’s US CPI data which is expected to register 3.3% year on year gains should provide further reason for Fed to continue its tightening program, offering additional support to dollar bulls. The euro may still make a run to the 1.3300 figure to force out the last of the weak dollar longs, but unless the markets experience an unexpected event risk, the volatility in the pair should moderate as the week goes by.
FX Spot Overnight
- EUR trades back to 3200 on soft IFP data
- JPY bearish Trade data takes the pair back to the 105 figure
- GBP despite hawkish BOE minutes the pound can’t hold 1.9100
- CHF rises back to 1650 but stalls
- 13:30GMT – (08:30 AM EST) USD Consumer Price Index m/m Jan Expected 0.2% Previous -0.1%
- 13:30GMT – (08:30 AM EST) USD CPI Ex Food and Energy m/m Jan Expected 0.2% Previous 0.2%
- 13:30GMT – (08:30 AM EST) USD Consumer Price Index y/y Jan Expected 3.2% Previous 3.3%
- 13:30GMT – (08:30 AM EST) USD CPI Ex Food and Energy y/y Jan Expected 2.3% Previous 2.2%
- 13:30GMT – (08:30 AM EST) USD Consumer Price Index NSA Jan Expected 190.9 Previous 190.3
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