Wednesday May 4, 2005 - 10:59:32 GMT
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FOREX: US OPEN MARKET POINTS 05-04-05
Fed Equivocates and Dollar Falls
One missing sentence. That’s all it took for the FX market to seize on the idea that Fed may actually halt it’s almost robotic 25bp per month tightening policy. The net result was a 100 point sell off for the greenback in holiday thinned Asian session. The pair retraced slightly in the European trade, but buoyed by mildly positive Services PMI (52.8 vs. 52.6 expected) and Retail Trade (0.3% vs. –0.2%) numbers, EUR/USD remained well above the 1.2900 figure for the first time since Friday.
For anyone not yet familiar with yesterday’s theatrics, the Fed released an amended FOMC policy statement just before the close of US equity markets that noted “Longer-term inflation expectations remain well- contained.'' The dovish tone helped to turn the Dow positive in the final minutes of trade eliciting conspiratorial accusations of equity bears everywhere. While stock shorts fumed in frustration at the mixed messages of the Fed, the FX market followed a much more pragmatic approach selling the pair on the belief that further slowdown in US economy will prevent the Fed from continuing its tightening policy of raising short term rates, thus eliminating the primary reason to be long the dollar.
It is ironic that the FX market started the week with dollar bulls fully focused on the 1.2700 barrier and now finds itself within reach of the 1.3000 level instead. Attention will now turn to Friday’s NFP report and given the bullish Challenger data that showed the smallest amount of corporate layoffs since November of 2000, the possibility of an upside surprise is strong. However, if the employment report prints weaker than the 170K expected, it will confirm the bear’s arguments that US economy has slowed significantly. At that point the dollar bulls will be 0-3 in our “ 3 key questions for dollar bulls rally” thesis and will have managed the unlikely feat of snatching defeat from the jaws of victory.
FX Spot Overnight
- EUR catapults to 2950 off dovish Fed comments
- JPY at 104.50 on dollar weakness
- GBP holds the 9000 level barely
- CHF back to 1900
- 11:45 GMT – (7:45 AM EST) EUR ECB Announces Interest Rates (MAY) Expected 2.00% Previous 2.00
- 14:00 GMT – (10:00 AM EST) USD SM Non-Manufacturing (APR) Expected 61.0 Previous 63.1
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