Tuesday July 19, 2005 - 11:27:37 GMT
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Zew Fails to Lift Euro
The ZEW investor survey rose to a 10 month high, reaching 37 against expectations of only 22, but the data failed to lift the EUR/USD as the pair dropped through the 1.2000 level in European trade. As we’ve noted many times before, the 11% drop in the euro over the past 6 months is helping the export driven Euro-zone region and boosting business confidence in the process. However, much of the spurt in export growth has been offset by rising oil prices which have hampered both producer profits and consumer spending in the Euro-zone. EUR/USD is likely to remained quagmired at these levels until oil prices ease. With Emily weakening as it passes through the western part of Gulf of Mexico, oil has come off the $60 handle and may retrace below the $55 level near term. Should that happen, the relief in prices will be bullish for both the euro and yen.
The USD/JPY meanwhile set yearly highs in the European session hitting 112.70 right after the London open as pension fund demand for dollars triggered stop losses above the 112.50 level. The pair corrected mildly off yet more rumors of an imminent announcement on Yuan revaluation, but when that did not come to pass it traded right back to daily highs. The yen of course is fighting a war on two fronts as both high oil prices and high carry charges have put enormous pressure on the unit. Yet the fact that the currency now trades at 15-month highs against the dollar should provide fuel to the export driven Japanese economy. We continue to believe that USD/JPY is far closer to a near term top rather than bottom and if crude costs moderate for longer than a few days the pair is likely to see a correction. Nevertheless, we certainly recognize momentum when we see it and can easily envision the pair reaching 113.50 or higher before any retrace takes place.
FX Spot Overnight
- EUR at 2074 ahead of TICS
- JPY above the 112.00 figure as traders eye Emily damage
- GBP dives to 7485 after Rightmove prints the 1st decline in 5 months
- CHF trading 1.2930
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