Thursday June 16, 2005 - 11:24:45 GMT
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Euro Awaits the FinMin Meeting
The 2000 level is proving to be the key psychological demarcation line for the euro. The unit came within a whisker of hitting it yesterday before the miserable TIC data report caused a flurry of short covering that pushed the pair to 1.2130. Regardless of what spin dollar bulls put on the TIC numbers, the bottom line is that for the second month in a row capital inflows into the US have been dramatically lower than the burgeoning monthly Trade Deficits. In March the Trade Balance recorded a deficit of –$53.3 Billion against TIC inflows of only $40.6 Billion, while last month the deficit increased to -$57.0 Billion while TIC came in at $45.7 Billion. With oil prices well above $50/bbl for the past 4 weeks, next months Trade Deficit numbers are certain to be higher and if the TIC data does not report matching capital inflows the structural imbalance of the situation will begin to weigh heavy on the greenback.
Meanwhile, the euro is battling structural problems of its own as the two day meeting of EU finance ministers which starts today may contain critical implications to the unit’s long tern health. At present the FX market holds little hope that EU will reach a budget decision, yet the Continent must come to grips with the growing political and economic problems in the region. If the ministers actually do manage to iron out a compromise, the badly oversold euro may finally stage a relief rally, as FX participants regain a modicum of confidence in the single currency. With only the Philly Fed in the calendar today it looks like European, rather than American news flow will dictate trading for the day.
FX Spot Overnight
- EUR retakes 2100 amidst short covering
- JPY at 109.01 little affected by positive eco talk from officials
- GBP takes out 8200 though retail data soft
- CHF firms to 2710 as SNB holds rates steady
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