Thursday May 26, 2005 - 11:29:25 GMT
Share This Story
FXCM - www.dailyfx.com
FOREX: US OPEN MARKET POINTS 05-26-05
“Non” Hangs over Euro
Over the past two years we have often referred to the euro, sometimes sarcastically, as the “anti-dollar”. A more accurate description would have been the “alternative-to-the-dollar”. As the only currency in the world, representing an economy large enough to challenge US GDP, the euro has derived most of its strength not from Europe’s superior economic growth (EZ GDP growth has consistently lagged US GDP growth over the past decade) but from three key factors:
1. EU Stability Pact which limited member nation’s ability to run fiscal deficits in excess of 3% of GDP
2. Creation of a unified “friction-free” EU economic zone which would allow EU citizens to sell their goods and services throughout the whole European Union with the same ease and business practice as they could in their home market
3. A conservative central bank, that would fight inflation, assure price stability and defend the value of the currency
If the French do indeed vote “Non” this Sunday, only one leg of the euro tripod will remain standing. With both France and Germany hampered by record unemployment and skyrocketing welfare costs temporary renouncing the Stability pact earlier this year and now France possibly rejecting the vision of a unified European market, the United States of Europe may devolve into a series of Balkanized fiefdoms. Only ECB’s continued hawkish monetary stance is left to prop up the argument of euro longs.
Tonight’s newspaper report that Nicolas Sarkozy, the former French Interior Minister and now one of the leading candidates for French Presidency, privately admitted defeat on the referendum vote, sent the euro plunging to 1.2540 level, before a quick denial from his office produced a mild snapback in the pair. The 1.2400-1.2600 zone represents a major long term support level for the EUR/USD and the pair has been trading there for a the better part of the week.
Will the French “Non” vote be the straw that breaks the camels back and destroy EUR/USD three year uptrend?
In the short run such a result would likely push the pair below the 1.2500 level probing long tern stops clustered around the figure. But unless US economic growth can continue to demonstrate 3.5% GDP growth and 200K+ monthly NFP prints, further downside momentum may stall with the EUR/USD possibly settling into a narrow “war of attrition” trading range. In either case, even the most ardent euro bulls would have to admit that a Non vote would greatly damage euro’s status as the alternative reserve currency.
We will be back on June 1st to deconstruct all the details.
FX Spot Overnight
- EUR dives to 2540 on reports that Sarkozy admits defeat
- JPY at 108.00 but exporter offers contain rise
- GBP better Car production numbers help snapback after pound probes yearly lows
- CHF jumps to 2330
- 12:30 GMT – (08:30 AM EST) USD GDP Annualized (1Q P) Expected 3.6% Previous 3.1%
- 12:30 GMT – (08:30 AM EST) USD Personal Consumption (1Q P) Expected 3.5% Previous 3.5%
- 12:30 GMT – (08:30 AM EST) USD GDP Price Index (1Q P) Expected 3.3% Previous 3.3%
- 12:30 GMT – (08:30 AM EST) USD Initial Jobless Claims (May 21) Expected 325K Previous 321K
- 14:00 GMT – (10:00 AM EST) USD Help Wanted Index (APR) Expected 40.0 Previous 39.0
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."