Monday March 28, 2005 - 11:17:40 GMT
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FOREX: US OPEN MARKET POINTS 03-28-05
With no important economic data in either Asia, Europe or North America scheduled for release, the FX market simply digested last weeks dollar rally in quiet trade on Easter Monday. Speculative buying in early Asia hours pushed the EUR/USD below 1.2900, but after the stops were cleared the pair lost momentum and snapped back above the figure. In addition to the general dose of dollar bullishness spurred on by the more hawkish Fed posture and the increasing rate differentials between the two, the euro also suffered from a bout of no confidence last week after the union voted to amend the 3% Budget deficit cap mandated by EU Stability Pact. By weakening the strict fiscal discipline it originally agreed to, the EU policy change undermined euro’ s new status as an alternative reserve currency to the dollar.
The market is now also worried about France where the referendum vote on EU constitution set for May 29th appears to be in deep trouble. In the past week 3 consecutive polls showed opponents of the measure exceeding supporters. The EU constitution must be unanimously ratified by all 25 member states if is to go in to effect. Should France reject the new constitution, Europe would suffer tremendous damage retreating from the idea of a single economic market with unified political power. The notoriously fickle the French did pass the “Maatrich” treaty in 1992 and with every French politician from right to left actively campaigning for the “yes” vote odds are good that French citizenry may yet come around. Still, doubts overhanging the outcome are likely to weigh heavy on the euro, especially if Euro-zone economic data does not show any signs of improvement and social disgruntlement grows as the vote nears.
Meanwhile, in Japan the yen continued to weaken, piercing the key 107.00 level several times during the night. The 107.00 barrier now represents critical resistance as a significant move above that level would signal a break of the major downward trend line that stretches all the way back to 2002. Japan is caught between a rock and hard place as high oil prices depress demand for its export markets abroad while at the same time increasing production costs at home. Yet if oil were to continue its retrace, especially if it fell below the psychologically important $50/bbl level, the yen is likely rise if not against the dollar then certainly against the euro. Thus, while euro traders will be transfixed by the geo-political events on the Continent, yen traders are far more likely to be focused on economic data as the week proceeds. Finally, as Friday nears the whole FX market will zero in on NFP’ s due this month ironically enough on April Fool’s day.
FX Spot Overnight
- EUR trades through 2900 but bounces back in European session as Frankfurt, London closed
- JPY twice pierces 107 but recedes
- GBP above 8600 on a mild snapback
- CHF above 1.2000 for the first time in 5 weeks
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