Tuesday July 26, 2005 - 11:23:48 GMT
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Euro Drops Despite IFO
Despite printing better than expected results of 95.0 vs. expectations of 93.3 on the monthly IFO survey, the EUR/USD could not muster a rally and in fact dropped to session lows shortly after the release of the report. Gernot Nerb, the economist at the IFO institute noted that, “On the export side expectations are positive but it seems the as if the upswing will come from the expected recovery in investment spending. It’s a first silver lining but have to see three increases in a row before we can say that the recovery is confirmed.” Nevertheless in a classic case of buy the rumor sell the news, the euro which climbed modestly throughout the late Asian session weakened in Europe after the IFO data hit the screens.
Steady economic data from the US exemplified yesterday by the record rise in Existing Home Sales, has armed dollar bulls with unshakable conviction that US rates are headed straight for 4%. This expectation of widening interest rate differentials has been the cornerstone of the dollar rally, sweeping all other economic issues aside.
The same dynamic has been operating in the USD/JPY where only 2 days after the yuan revaluation news the pair finds itself right back above 112.00 as carry trade speculators continue to plow in. With oil now once again approaching the $60/bbl level, the yen is unlikely to find any support. Yet we can’t help but feel that the latest dollar bullish price moves are more like the final spasms of a dying trend, rather than a concerted assault on new highs. Though housing data was strong, existing inventories rose to 2.653 million units and latest anecdotal data suggests that supply may increase to 5.1 months – the highest level in a number of years. If housing slows, rate hikes will cease and so will the dollar long’ s main argument for a continued rally.
FX Spot Overnight
- EUR falls to 2010 after IFO
- JPY above 112.00 as stops triggered
- GBP once more below 7400 on fears of weak Industrial Trends survey
- CHF nears 1.3000 once again
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