Wednesday June 29, 2005 - 11:03:25 GMT
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Yen Break 110; Euro Stagnant as Traders Eye US GDP
USD/JPY broke through the psychologically important 110 barrier despite declining oil prices and relatively strong Industrial Production data out of Japan. Industrial Production increased by 0.9% on a year over year basis while the price of oil dropped nearly $2 to $58.20 in NYMEX trading yesterday. Yet yen continued to be sold throughout the night partly on concerns that high crude prices will indelibly impact Japanese economy going forward, but also perhaps due to fresh demand from carry trade speculators as the pair will now have 325bp spread, if as expected the Fed will raise rates by 25bp at this Thursday’s FOMC meeting. We continue to believe that with improving underlying fundamentals and the possibility of a strong retrace in oil prices, the breakout above the 110 level is more likely to turn into a “bull trap” for dollar longs willing to chase price here. However, for the time being dollar bulls clearly control the market and they could easily squeeze the holdout shorts through the 111.00 figure before the up move meets significant resistance.
Meanwhile in Europe, the stagnant quotes on the EUR/USD belied some turbulence overnight, as the pair first dove 50 points to 1.2030 on speculation that US GDP would print at 3.7% vs. 3.5% expected and then rallied back to the 1.2060 level on rumors of Asian Central Bank buying. Euro bears clearly want to trigger another move below the 1.2000 level and they may yet succeed. However, the longer the euro remains above this psychologically important number the stronger the possibility of a counter trend rally in the pair, as traders will become convinced that the worst news may be behind the European currency.
FX Spot Overnight
- EUR ranges widely from 2080 to 2030 and back
- JPY breaks through the 110 even as oil recedes
- GBP picks up 50 points to 8150 as mortgages show strength
- CHF at 2820 as KOF misses slightly
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