Tuesday May 31, 2005 - 10:32:26 GMT
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FOREX:US OPEN MARKET POINTS 05-31-05
Is it really a surprise that the euro broke the 1.2400 figure in tonight’s European session? Given the French rejection of the EU Constitution on Sunday, the likely Dutch rejection of the same treaty this Wednesday and tonight’s torrent of EU eco data which continues to show the region mired in a no-growth environment today’s yearly low in the EUR/USD could only be a shocker to the most die hard euro bulls. As we wrote yesterday, after Sunday’s results had been confirmed, “While the short term trading (in the pair) is following the classic ‘sell the rumor buy the news’ dynamic, the longer term implications for the price action may not be as benign for euro longs. “
Yet now having lost its long term support of 1.2500 and besieged by an array of political and economic problems, the key question for market watchers on the euro is how much more to the downside? In our opinion, in the short term not much. The pair is grossly oversold on technical grounds and with most of the 1.2500 – 1.2400 stops cleared off the books and positioning now strongly skewed to the euro short side, the market will need to see much better than expected US eco data in order to take the pair below the 1.2200 level.
Today’s Chicago PMI number will be of great interest to the market as it may confirm the signals of US economic slowdown emitted earlier by the Empire Manufacturing and Philly Fed reports. The same dollar rally that heartened greenback longs may be also extracting a severe toll on US manufactures which have now seen their costs skyrocket by 12 cents in euro terms, while providing the export based European manufactures with a much needed boost in competitiveness.
There is no doubt that the rejection of the EU Constitution will now delay further EU integration and impact the already lackluster productivity results of the region. But the same currency flows that took the euro to record highs and wreaked havoc on European industry sending it into a recession may now work in reverse, by increasing demand for materially lower European exports, widening the US trade deficit to almost $1 Trillion per year and thus creating a natural support for the beleaguered European currency .
FX Spot Overnight
- EUR drops to 2350 as the drubbing continues
- JPY at 108.00 as Japanese data remains steady
- GBP dips below 8200
- CHF at 2450 with inflation non-existent
- 12:30 GMT – (08:30 AM EST) CAD GDP m/m (MAR) Expected 0.1% Previous 0.3%
- 12:30 GMT – (08:30 AM EST) CAD Quarterly GDP Annualized q/q (1Q) Expected 2.5% Previous 1.7%
- 12:30 GMT – (08:30 AM EST) CAD GDP Deflator q/q (1Q) Expected 3.0% Previous 3.2%
- 12:30 GMT – (08:30 AM EST) GDP by Industry (MAR) Expected 0.1% Previous 0.3%
- 14:00 GMT – (10:00 AM EST) Consumer Confidence (MAY) Expected 96.5 Previous 97.7
- 23:30 GMT – (07:30 PM EST) Chicago PMI (MAY) Expected 62.0 Previous 65.6
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