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Monday July 18, 2005 - 21:44:57 GMT

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Forex: TIC Data Fails To Make The Dollar Tick

DailyFX Fundamentals 07-18-05

By Kathy Lien, Chief Strategist of

· TIC Data Fails To Make The Dollar Tick
· Greenspan’s Note Hints Of Possible Tone To Be Taken At Testimonies This Week
· Pound Slides As Rightmove Survey Confirms Housing Market Weakness

US Dollar

The dollar failed to tick higher despite a stronger US TIC (Treasury International Capital) report and a cautiously bullish note from Fed Chairman Alan Greenspan in response to questions about the yield curve conundrum. As traders stared at their screens in anticipation of the much awaited TIC report, some were relieved while others hoping for some volatility were left disappointed that the number came in right in line with expectations. Net foreign purchases of dollar denominated assets increased by $60 billion in May from $47.8 billion in April. There is no doubt that the number is more encouraging than we could have expected, but the details still paint a mixed picture. Matching the TIC data with the trade data, which is a very rough estimate of net flow, we see that $60 billion is more than enough to fund the $55.3 billion trade deficit that we saw for the same month. However, if we take a look at the three month average of the reports, average inflow still fell short of the average trade deficit’s funding needs by $5.84 billion The pace of foreign central bank accumulation remains limited with the Japanese government barely making any purchases. Most of the demand came from private investors who only had an appetite for fixed income instruments. Net foreign buying of US stocks was essentially flat on the month. Overall, the data delivers no surprises, with Greenspan confirming the rather steady pace of status quo growth, reminding us that this indeed is the summer, a time when ranges tend to prevail. Greenspan’s note is probably a good hint of the tone that he will be taking in his semi-annual testimony on the economy and monetary policy Wednesday and Thursday of this week. For the most part, he thinks that higher oil prices will trim growth and boost inflation, but with stimulative long-term rates, the economy “seems to be coping pretty well” with the high cost of oil. This suggests that for those banking on Greenspan delivering us a surge in volatility in the US dollar, the odds are not on your side.


Like the US, Europe reported softer consumer prices for the month of June. Headline CPI increased by 0.1 percent on a month-by-month basis while the annualized pace of growth in increased from a downwardly revised 2.0 percent to 2.1 percent. Even though core consumer prices grew at a slower pace (1.4 percent compared to 1.6 percent), the overall CPI index is still above the central bank’s target limit of 2 percent, effectively keeping the central bank’s hands tied from lowering rates. Yet this should surprise no one since the ECB has been fairly vocal about their stance against rate cuts. The weaker Euro has been very stimulative for the region. Tomorrow’s German ZEW survey should reflect just that. Sentiment is expected to continue to improve as economic activity accelerates in the largest country within the Eurozone.

British Pound

There have been no new developments in the United Kingdom as traders referenced one sole report on housing price valuations during the session. According to the latest Rightmove survey, released by Halifax, the mortgage lender, residential valuations declined 1 percent in the monthly comparison and rose only slightly in the annualized figure. This recent piece of data only acts as a confirmation that the housing sector is indeed in the dumps and further bolsters notions of a benchmark repurchase rate cut by central bank officials. Although concerns of consumer credit lending still plague the Monetary Policy Committee heads, it has been suggested that both consumer spending and declining housing prices pose a much bigger concern at this point in time. As a result, policy makers may opt to side with a rate cut sooner than later as has been widely expected. Separately, speculation has arisen of the possibility that several parties may have benefited from the 6 percent decline leading up to the July 7th London bombings. The rumored suggestions have peaked the interest of law enforcement agencies such as Scotland Yard with many suspecting ties with Al-Qaeda. This is not the first time that speculation has risen over terrorist event short selling. The last time this occurred was shortly after the September 11th attacks on U.S. soil as market participants grab at any potential reason for a collapse.

Japanese Yen

Japanese markets were closed for Marine Day, helping to explain some of the lackluster price action overnight. US traders pounded USDJPY after the TIC data, but most losses have been recovered since then. This marks the third straight session that no real directional bias has emerged after the Japanese yen declined for eight straight sessions. With no economic data set for the session, traders look to be focusing on tomorrow’s leading economic and co-incident indexes. For the most part, with both being a compendium of previously released economic data, market participants aren’t expecting much out of the release. However, most notable is the fact that expectations are for the figure to be released lower than previous reports, indicating that things may not be as bright as previously predicted. It’s no surprise as consumer spending has lost some momentum going into the second half of the summer season with capital investment and industrial production weakening slightly. As a result, it may seem that tomorrow’s action will remain relatively the same with both reports keeping yen bulls relatively at bay until an optimistic star can shine some light on the land of the rising sun.


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