Tuesday July 12, 2005 - 11:08:04 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - U.S. EditionKey Points
• Scale of USD correction is disruptive and could prompt more of the same ahead of tomorrow’s US trade data.
• EUR once again leads the way in Asia.
• Swedish CPI stronger, UK CPI as expected.
• BoC meeting features today.
A sizeable corrective move in the USD
over the past 24 hours and the scale of this itself will make USD longs wary. This sort of movement tends to create its own volatility and while some rebound may be seen today, more USD weakness could easily develop ahead of Wednesday’s US trade data. The 1.2184- 1.2205 area on EUR-USD
(twin highs from late June)represents the first point of resistance, although 1.2288 and 1.2351 are the bigger ones. Oddly, the move in Asia started around the same time as it did on Monday, with the EUR leading the way. This may just be coincidental, but a number of EUR crosses also headed higher around this time, including EUR-GBP and EUR-CHF, both of which had been displaying signs of an imminent correction lower yesterday afternoon. However, crucially EUR-GBP has managed to hold below 0.6900 and as long as this remains the case there is a risk of a decent pullback. Below 0.6860 would add momentum to such a move. UK CPI data this morning was unexciting.
One factor helping the EUR
yesterday was the publication of the CDU’s election manifesto, which essentially pulled no punches about what was required in terms of reform in Germany. This is a good first step, but many problems remain in attempting to put these policies into practice. For example, the CDU’s likely coalition partner, the FDP, is opposed to the hike in VAT. Furthermore, while such measures will boost the longer-term prospects for the German economy, they will inevitably induce short-term pain, especially the labour market measures that are likely to prompt job rationalisation in the first instance. In conclusion, it is a positive sign for the EUR, but whether the market has the confidence to trade on such a longer-term issue is not clear.
has also advanced well against the USD. It has been a late mover over the past 24 hours, but while below 111.25-35 there is downside risk and there is not a lot on the chart until 109.65-110.00.
came out stronger than expected, with the core y/y rate jumping up to +0.7% from the low +0.2% recorded last month. Core CPI has been erratic in recent months and the market will want to see such a stabilisation being sustained. However, today’s data will help take some of the pressure of the SEK. EUR-SEK moved very close to the July 1 high of 9.4909 yesterday, so has now failed twice at this level. In this regard there is some corrective downside risk and above 9.50 is required to keep the move going to 9.60 resistance (9.5960 being the high from July 2002).
the BoC announce their latest policy decision against a background of improvement in the export sector, although they will want to see this becoming more established before hiking rates. The latest export data is still to come tomorrow, but today’s meeting is again likely to allude to the likelihood of more tightening at some point and if the recent improvements in the export sector are also acknowledged, this would imply they are one step closer to reactivating the tightening cycle. USD-CAD support is at 1.2000-55 and this should be tested at some point this week as long as there is no fresh weakness in tomorrow’s export data.
Data/event EDT Consensus*
US Chain store sls (w/e Jul 9) w/w 07.45 +0.5% last
CA New house price index (May) m/m 08.30 +0.6%
US Redbook sls (w/e Jul 9) m/m 08.55 +0.5% last
CA BoC policy announcement 09.00 2.5%
NZ Retail trade (May) m/m 16.45 +0.4%
US ABC consumer conf (w/e Jul 10) 17.00 -9 last
JP Current account (May, sa) 19.50 Y1.3trn
AU Consumer sentiment (Jul) 21.30 113.7
Latest data Actual Consensus*
JP Domestic CGPI (Jun) y/y +1.4% +1.6%
JP Consumer confidence (Jun) 46.8 48.1
FR Trade balance (May) -€1.25bn -€2.6bn
SE CPI (Jun) y/y +0.6% +0.4%
SE CPI UND1X (Jun) y/y +0.7% +0.7%
GB CPI (Jun) y/y +2.0% +2.0%
GB RPI (Jun) y/y +2.9% +2.9%
GB RPIX (Jun) y/y +2.2% +2.2%
* 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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