Wednesday March 9, 2005 - 11:19:07 GMT
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FOREX: US OPEN MARKET POINTS 03-09-05
Oil! Oil! Oil! Euro’ s Best Friend
As howling winds and miserable sleet descend on Wall Street tonight FX traders need only to look to the oil pits of the nearby New York Mercantile exchange to understand the reasons for the rally in the EUR/USD this week that has already added 120 points to the pair. With crude within a whisker of its all time high of $55.17/bbl is it any wonder that the dollar is weak?
High oil prices of course affect the Euro-zone as negatively as US - perhaps even more so - as the export driven region gets hurt both by higher input prices and weaker global demand. However, the euro has long ago ceased to be governed by its own fundamentals and is instead trading mainly as the “anti-dollar”. Despite the fact that US is far less of a manufacturing nation than even a decade ago, higher oil prices still levy a tremendous price on the US economy in the form a stealth consumer tax that quickly curbs spending. In an economy completely dependent on rapid growth to solve its twin deficit problems, any factor that could derail that scenario naturally generates massive bearish sentiment towards the greenback. To view the uncanny correlation simply check the price charts for both oil and the euro over the past 9 months. Even the decoupling last December presaged euro’ s 600 point collapse against the greenback in January.
Oil weighs heavy on the yen as well because Japan – which imports 99.5% of its crude – is the most vulnerable member of the G-3 to oil spikes. This has been the key reason for yen’s relative weakness against the dollar despite improving fundamentals like tonight’s LEI data which printed above 50 for the first time in 5 months.
As the market continues to focus on Friday’s Trade deficit number we wonder if the worst expectations have already been priced in. If the cold winds of winter begin to recede from the Northeastern United States and crude prices start to soften so the euro may follow. But for time being the euro bulls own the bid.
FX Spot Overnight
- EUR maintains momentum trading 3370
- JPY hits 104 buoyed by good LEI data
- GBP below 9300 as IP and Trade Balance disappoint
- CHF at 1600 mirroring euro
- 13:30 GMT – (08:30 AM EST) CAD New Housing Price Index m/m Jan Expected 0.3% Previous 0.2%
- 13:30 GMT – (08:30 AM EST) GBP NIESR GDP Estimate Feb Expected -- Previous 0.8%
- 19:00 GMT – (2:00 PM EST) USD Beige Book
- 20:00 GMT – (15:00 PM EST) NZD RBNZ Monetary Policy Meeting Expected 6.50% Previous 6.50%
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