Monday June 14, 2004 - 21:15:05 GMT
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GVI-- Forex Strategy Session for the dollar-- Far East Open
The focus of trade for forex trade is now on Fed policy as it pertains to inflation. Apparently the FOMC feels that the economy is on a firm enough footing that it can now retreat from its requirement to combat deflation and promote job growth. They have now turned their attention to the price pressures that their ultra-easy monetary policy and petroleum price rises have generated. At least four messengers have made this shift abundantly clear in the past week, including Greenspan himself. Since monetary policy these days is implemented via expectations and the Fed is pursuing a virtual monetary policy, it might be useful to make note of what actions the markets have taken on behalf of Chairman Greenspan. For the end of this month the Fed funds rate has moved to 1.25% and then some as a 30% risk of a 50bp hike is priced in. By yearend, the cost of money reflects fed funds at 2.50%. This rather aggressive tightening path should continue to support the dollar. The May CPI data Tuesday will be critical.
The dollar was undermined by the April Trade report that registered a deficit of -$48.3 bln after a revised shortfall of -$46.6 bln in March. Dealers said the trade gap rarely has a lasting impact on the markets. May Retail sales grew a robust +1.1% in the month and the ex-autos data advanced by +0.7%. Tuesday sees the pivotal May CPI report.
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