Friday July 1, 2005 - 04:41:48 GMT
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Tricom Futures and Foreign Exchange -
Forex: Somebody forgot to tell the Fed the US economy is in a soft patch
With the US closed on Monday for 4th July, we should see a fairly uneventful session today. We may see some short covering in EUR, and some profit taking in USD longs ahead of the long weekend. As such, don't panic if we see the EUR trade up to around 1.2180-1.2200, and the USD/CHF get down to around 1.2700. This just allows us to gain better trade location in shorting EUR, and buying USD for when the markets get back to normal on Tuesday. The US Fed is signalling there are more tightenings in the pipelines, the ECB will more than likely cut rates in coming months, and the UK's economic data is showing an economy slowing, suggesting the BOE may also cut rates in August. Basically, i'm saying we can expect further downside for the EUR and GBP, and so further upside in the USD/CHF and USD/JPY.
The USD softened against the euro on Thursday in a somewhat technical-driven session after the Federal Reserve raised U.S. interest rates by a quarter-percentage point to 3.25 percent, as expected. The euro, however, rallied after the initial dollar gains, but the currency's recovery from its modest fall after the Fed rate hike could be driven by market participants positioning ahead of the long weekend.
U.S. Treasury debt prices rose on Thursday after the Federal Reserve raised interest rates a quarter-percentage point but surprised few with its suggestion that further monetary tightening was in store.
The central bank's post-meeting statement indicated that officials remain optimistic about the U.S. economy despite recent signs of softness in the face of soaring oil prices.
Yet investors appeared to be banking on the possibility that future economic data might prove the Fed wrong.
Policy-makers did acknowledge the latest spike in energy costs, but removed language from its prior statement referring to a spending slowdown during the spring.
This rosy view dashed hopes for a near-term pause in rate hikes, prompting a brief pullback in bonds.
U.S. stocks fell on Thursday after the Federal Reserve raised key interest rates a quarter point for a ninth straight time without hinting that the year-long rate-rise cycle may soon come to an end.
Higher interest rates are typically bad for stocks since they increase the cost of borrowing money for consumers and corporations. While a ninth rate increase was considered a given, financial markets were hoping for the Fed to signal that the campaign of rate increases was nearing an end.
Despite some recent signs of economic softness resulting in part from energy prices near record highs, the Fed action indicated enough concern about the potential for rising prices to keep official interest rates on an upward path for now.
Today’s Economic Releases:
US: Michigan Consumer Sentiment
US: ISM Manufacturing
Today’s Top Trades
· Sell EUR/USD strength towards 1.2130-40
. Sell GBP/USD around 1.7970-80
. Buy USD/CHF around 1.2760-50
For more ideas send me an email, firstname.lastname@example.org
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