Thursday June 9, 2005 - 11:14:02 GMT
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Euro Data Dour But Yen News Sunny
Euro Data Dour But Yen News Sunny
Just when the traders thought it was safe to buy the euro a cascade of stop losses dropped the pair almost a 150 points in a matter of hours in late afternoon US session yesterday before the unit finally stabilized at the 1.2200 figure. What was the reason for the dive? Some analysts attributed the initial selling to a report that the Dutch government significantly lowered its growth projections from 1.5% to 0.4% for next year. Once the selling started, thin market conditions triggered stops all the way to 1.2200 until sizable bids reappeared once more. The hangover effect from last week’s NO votes and the simmering discontent with EZ economic performance will continue to dog the euro in the near term. Tonight’ s lackluster German Trade Balance data which printed at 12.B euros vs. expectations of a 14.8 Billion did nothing to help the euro longs . Exports were down for surprising 2nd month in a row suggesting that Q2 growth may indeed be quite weak. Nevertheless, we note that these reports are from the April timeframe – a period during which the euro was fully 8 cents higher than now. The massive decline in the currency since then, should boost the EZ export sector going forward with month over month comparisons looking decidedly more favorable as the summer progresses. The FX market shrugged off the data, with dealers now focused on Alan Greenspan’s testimony before Congress later in the day and the US Trade report on Friday.
For his part , the Chairman is not expected to make any market moving statements, most likely resorting back to his cryptic manner in order not to give away future policy objectives. However, the market is quickly coming to the consensus that the Fed is near the end of its tightening cycle. Paul McCulley of Pimco has a very instructive chart in his latest report which demonstrates that the Fed never raises rates once the ISM index falls below the 50% barrier. With ISM dropping from 62.6 last year to 51.4 in May most of Fed’s rate hikes are likely behind us.
Meanwhile, in Japan yet more data to confirm that the slow turn to the upside is gaining strength. The latest Consumer Confidence numbers parallel the increase in Eco Watchers survey yesterday, rising to 48.2 from 47.9 the month prior. while the Trade Balance numbers through lower than in March, beat expectations by printing at 1196.6 Billion yen versus 1150 Billion yen projected. If Japanese economic data continues to improve, the yen should stop “slavishly following the yuan revaluation news” as Mitul Kotecha of Calyon puts it, and begin attracting support on its own merits.
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