Monday April 18, 2005 - 10:34:36 GMT
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FOREX:US OPEN MARKET POINTS 04-18-05
Is the Dollar Still a Long?
Let’s be clear. The only reason to be long the dollar these days, given the massive structural problems of the US economy, is the growing interest rate differential between the greenback and most of the other majors. The spread attracts carry trade capital to the currency creating a natural market buyers. Therefore, last week’s economic reports which signaled a significant slowdown in US economic activity were quite interesting as they caused a shift in market psychology stopping the dollar rally cold.
After Advanced Retail Sales reported a disappointing rise of only 0.3% versus 0.8% expected, the Empire State Manufacturing plunged to 3.1 from 18 and University of Michigan Consumer Confidence registered an 18 month low, the FX market was suddenly far less confident about the continuation of Fed’s policy of “measured” rate hikes. If the US economy is entering another “soft patch” because of rising oil prices, the Fed may be forced to suspend it tightening policy for the time being out of fear of tipping the country into a serious recession.
According to several analysts, the market will now focus on Tuesday’s and Wednesday’s inflation data, and if those numbers ex- food and energy remain muted, the dollar may see further selling pressure. Tonight’s bounce in the euro is largely an attempt by many speculative funds to front run the data and position themselves ahead of what may be a turn in the pair. For its part, the euro has hardly been a bastion of strength and the lingering doubts about French passage of the EU Constitution are likely to cap any meaningful rally. Therefore, we believe this low volatility, highly contained trading range may continue a while longer until these issues facing the market can be definitively resolved.
FX Spot Overnight
- EUR breaks 2980 as post-Friday bounce continues
- JPY at 107.50 hampered by tensions with China
- GBP takes out the 9000 figure on dollar bearish sentiment
- CHF targets 1900 showing strength
- 12:30 GMT – (8:30 AM EST) CAD New Motor Vehicle Sales m/m Feb Expected10.0% Previous -1.5%
- 12:30 GMT – (8:30 AM EST) CAD International Securities Transactions Feb Expected C$1.5 Previous C$1.8
- 12:30 GMT – (8:30 AM EST) USD NAHB Housing Market Index Expected 68 Previous 69
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