Thursday July 7, 2005 - 11:30:05 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - U.S. EditionKey Points
• Explosions in London severely disrupt markets.
• Uncertainty and volatility could see outstanding positions being cut back further, undermining USD short-term.
• CHF is the biggest potential beneficiary.
0 Reports of multiple explosions in London this morning have significantly disrupted financial markets. As far as the currency market is concerned, GBP has naturally been the hardest hit, although the USD was weaker against the EUR, with the US perhaps seen as a potential target if terrorist action is involved. There has been no official confirmation of who or what is responsible, but terrorist activity seems the most likely cause and it is likely to be connected to the G8 summit currently being held in the UK.
It is difficult to put forward definitive market analysis in these circumstances, other than to say that more volatility is possible. If anything it could see positioning in general being cutback, which would work against the USD. The CHF would be the biggest beneficiary of this. The ‘positioning’ impact was also evident in oil markets, with crude falling sharply after earlier surging to fresh highs. Normally, such events would tend to boost oil prices. As far as EUR-USD
is concerned, the market had seemingly been on hold until tomorrow’s employment report and the reaction to yesterday’s very strong nonmanufacturing ISM survey was slightly disappointing. However, while there is a lot of uncertainty about what will happen in the days ahead, we would suspect that once the dust settles the downside bias on EUR-USD will remain intact.
There was better news for the AUD
last night in the form of a stronger than expected labour market report and this boosts the chance of an eventual rebound in the AUD. However, 0.7445 at least needs to be won back to alter the current very negative technical situation. Above 0.7505 would be more impressive.
Last night’s NIESR estimate of UK GDP
may have come in as expected at +0.3% for June, but take a look at the back revisions (prompted by the recent changes in the official GDP series). There is a clearly lower growth profile than that previously seen and this is also reflected in the downward back revisions to official GDP and yesterday’s manufacturing output numbers. If plugged into the MPC’s new forecast for the Inflation Report it would perhaps give them a clear route to enacting a rate cut. Once again the statistics would appear to have let them down (see below for more on today’s MPC). Today’s events in London are also likely to facilitate an early rate cut, perhaps as soon as today. EDT Wednesday June 8 2005
Data/event EDT Consensus*
GB BoE rate announcement 07.00 4.75%
EU ECB meeting outcome 07.45, press conf 08.30
US Initial claims (w/e Jul 2) 08.30 320k
US Continuing claims (w/e Jun 25) 08.30 2600k last
CA Building permits (May) m/m 08.30 0.0%
CA PMI (Jun, nsa) 10.00 62.0
Latest data Actual Consensus*
GB NIESR GDP (3mths to Jun) q/q +0.3% +0.3% last
AU Unemployment rate (Jun) 5.0% 5.2%
AU Employment (Jun) +41.7k 0k
CH Unemployment rate (Jun, sa) +3.8% 3.8% last
GB HBOS house prise (Jun) m/m +0.1% -0.6% last
NO Manu prod (May) m/m -0.5% -0.3%
* Consensus unless stated
2005, Mellon Financial Corporation Note: Although obtained from sources believed by us to be reliable, Mellon Financial Corporation and its affiliates cannot guarantee the accuracy or completeness of the information upon which this report is based. This report does not purport to disclose the risks or benefits of entering into particular transactions and should not be construed as advice in any specific instance. The views in this report constitute our judgement as of this date and are subject to change without notice.
Ian Gunner 44 20 7163 5996 06.40 EDT Monday May 31 2005
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