Tuesday May 31, 2005 - 22:57:16 GMT
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Tricom Futures and Foreign Exchange -
Forex: Bye Bye Euro, and Buy Buy the USD
The crossover between the EUR/USD and USD/CHF, which Iíve been speaking about for the last couple of weeks occurred yesterday during Asian trade. When the 2 crosses passed each other at 1.2430, they proceeded to accelerate their respective moves. This morning, the EUR/USD is languishing at 1.2300, while the USD/CHF is flexing its muscles up at 1.2470. I think coming into Fridayís US employment data, or immediately after, we can expect the EUR to test the 1.2000 region.
The USD surged to fresh seven-month highs against the Euro on Tuesday after France's rejection of the European Union constitution sparked worries about the prospects for economic reform in Europe. The Euro slid 1.4 percent against the dollar compared with late Friday, on track for its largest one-day decline since early January. Against the strengthening U.S. currency, the Euro swiftly fell to $1.2297 in New York, piercing major support around $1.2450 and technical barriers at $1.23. Voters in the Netherlands were likely to deal another blow to the prospects for the European constitution today, where polls show the "No" camp is likely to gain 60 percent of the votes. The Euro's decline was significant since larger institutional accounts were joining short-term speculators in selling off the euro.
The US Treasury market didn't even hesitate in the wake of the French "no" vote on the EU Constitution. In fact, the Treasuries started the session out strong and simply accelerated the strength in the wake of conflicting US scheduled economic reports. Apparently the trade was willing to embrace the soft Chicago Purchasing Managers data over the positive Consumer Confidence readings. We also think that overt early weakness in the US equity market gave the Bond bulls an added advantage. Some traders even suggested that rumours of more troubles within the US auto sector inspired flight to quality buying in Treasuries in a manner similar to the EU flight to quality buying posted overnight.
The US stock market certainly appeared to be in a profit taking mode on Tuesday and with the significant contraction in the Chicago Midwest purchasing managers Index we can understand the renewed concerns toward the US auto sector. We suspect that slightly lower Oil prices dampened the slide in prices but with the Dollar rising sharply some multinational company's might be fearful of a future charge against earnings off currency issues. It is also possible that an airplane crash in New Jersey shortly after the opening facilitated the initial weakness off a misguided terrorism concern. With Boeing and Airbus exchanging legal blows in front of the WTO it is possible that some players fear protectionism fears and that could have dampened investor sentiment at the start of the week.
Todayís Economic Releases:
∑ AUS: GDP
∑ US: ISM Manufacturing
Todayís Top Trades
∑ Buy AUD/NZD around 1.0675
. Buy USD/CHF at 1.2460
. Sell EUR/USD at 1.2330
For more ideas send me an email, [email protected]
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