Thursday June 2, 2005 - 10:55:30 GMT
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FOREX: US OPEN MARKET POINTS 06-02-05
Euro Squeezes the Shorts
Although, the Dutch overwhelmingly voted No on the EU referendum, rejecting the pact by 62% to 38%, the euro staged a furious short covering rally rising for the first time in a week, almost reaching the 1.2300 figure in early European trade. As we noted yesterday, with the everyone in the market leaning to the sell side, the price action over the past few days was reminiscent of a capitulation bottom as the last of the long term euro bulls bailed out of their positions after the currency broke key support at 1.2500 figure earlier this week.
While the resounding defeat of the EU Constitution clearly put a halt to further European political integration, the region’s economic reforms may continue to progress unabated. French media is suggesting that Tony Blair, who takes over the EU presidency this month, may seize the opportunity presented by the disarray in political arena to push ahead with ’liberal’ economic reforms, leaving the institutional infrastructure to languish. If this scenario plays out as planned, it may in fact be a blessing in disguise as it enacts much needed economic changes in the Euro-zone without creating a massive bureaucratic stronghold in Brussels.
As Europe comes to grip with its political crisis the market’s attention may turn back to US economic data. Yesterdays comments by Dallas Federal Reserve President Richard Fisher that the Fed was in the “eighth inning” of its rate hike cycle almost flew under the radar as the market only focused on EU developments. But should Mr. Fisher’s comments prove to be accurate, dollar’s rapid climb may come to a grinding halt. Our proprietary studies show that over the past 15 years, transitions from restrictive to neutral monetary policies by the Fed led to a decline in the currency as markets quickly discounted regime changes.
FX Spot Overnight
- EUR drops to 2250 as bad eco data and rumors batter the currency
- JPY at 108.50 remains stronger on a relative basis
- GBP dips to 8140 on much worse than expected PMI data
- CHF at 2570 following euro’s collapse
- 11:45 GMT – (07:45 AM EST) EUR ECB Announces Interest Rates (JUN) Expected 2.0% Previous2.0%
- 12:30 GMT – (8:30 AM EST) USD Non-farm Productivity (1Q F) Expected 3.00% Previous 2.60%
- 12:30 GMT – (8:30 AM EST) USD Unit Labor Costs (1Q F) Expected 1.90% Previous2.20%
- 12:30 GMT – (8:30 AM EST) USD Initial Jobless Claims (May 28) Expected 325K Previous323K
- 14:00 GMT – (10:00 AM EST) USD Factory Orders (APR) Expected 1.00% Previous0.1%
- 14:00 GMT – (10:00 AM EST) USD Factory Inventories (APR) Expected 0.4% Previous0.5%
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