Wednesday June 9, 2004 - 12:58:32 GMT
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Forex Strategy Session for the dollar-- NY Open
This is a market clearly lacking in convictions, as the trading scenario seems to change nearly daily. Now traders are focused on Fed tightening, falling oil prices and an upward revision in Japanese 1Q04 GDP. His could change again on Thursday, so it pays not to try to hold onto deep convictions at the current time and not to jump onto the latest mini-scenario because it is not likely to last for very long.
A key focus at the present time is the machinations of the oil markets where July prices peaked last Wednesday at $42.45 before tumbling to the $37.00 level in electronic trade today. Since that time, OPEC increased its production quotas less than expected and now the entire Nigerian oil industry (seventh largest exporter) is on the verge of shutting down due to a workers walk out. Now this is a contrarian market. The focus today for energy is the weekly API/DOE data from the U.S., which are expected to show large one million barrel builds in Crude and gasoline stocks at 14:30 GMT.
In Japan 1Q04 Real GDP was revised upward to +6.1% from +5.6% (preliminary). An improved result had been expected and BOJ governor Fukui remarked that the Japanese economy is gaining momentum. The yen responded positively to the BOJ remarks and the data, with the yen picking up more ground vs. the euro and the dollar. We had commented here Tuesday about market talk that the $/yen was headed to 105 by mid-year and 100 by yearend, but still wonder if MOF will stand still for such a move. JGBs have weakened significantly in the past three months. Yields were up another 5bps today to 1.75%. Thatís about +35 bps in the past three months. A massive amount of JGBs had been issued at ultra-low interest rates over the past several years and could generate problems as they are marked to the market.
U.K. April Manufacturing Output grew by a greater than expected +0.9% and will reinforce the case for a BOE tightening on Thursday. It seems that more are expecting a 25bp rate hike, but that view is by no means universal. Arriving at the G8 in Sea Island, Georgia, Italian PM Berlusconi complained about the high value of the euro and how it is impacting exports and said he would raise the issue at the meeting.
The Aussie$ has been hit from all sides, with the hawkish Greenspan comments and strong Japanese GDP figures hurting along with the fall in energy prices. April Housing Finance Approvals declined by +0.6% in the month. The immediate focus now is the May Employment report due early on Thursday. Jobs are expected to have fallen by 10,000 after the 56,200 increase in April, but the unemployment rate is seen unchanged at 5.6%. The .7000 line in the Aussie$ exchange rate has developed into a psychological pivot for the markets.
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