Friday June 18, 2004 - 15:17:31 GMT
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GVI Forex Strategy Session for the dollar-- NY Open
It seems that the markets are torn between a longer-term negative bias for the dollar and a positive short-term view. While this is not immediately obvious in our professional trader poll this week, a closer look at the data shows a clusters of those seeing the dollar higher at the end of next week and sharply lower by the end of 2004. Those with a positive short term view appear to be basing this perspective on the likelihood of higher short-term rates from the U.S. over the next several quarters, while those with a negative long term bias are likely focused on the chronic U.S. Current Account data. The Current Account report is curious figure because the markets seem rarely to trade on the release itself, but frequently cite the deficit as the underlying reason for chronic dollar weakness. Street estimates are for a gap on the order of $142bln in 1Q04 vs. -$127.5bln in 4Q03.
The Eur/$ continues to hold in limbo just above the neutral 1.20 line vs. the dollar. The twin struggles in Europe between Blair and more conservative European elements against the French, Germans and others over the EC presidency and the EU constitution is not inspiring much confidence. On the other hand, it is notable that the dollar cannot make much headway while Europe squabbles over fundamental issues. There were no major releases today and the focus of most traders remains on the European soccer tournament.
The Nikkei was hit hard today, falling 225 points to 11,382. The slide gave JGB prices a needed lift. They closed at 1.85%,-9bp. The yen continues to perform relatively well as it continues to be seen as a refuge from the euro. Worries about the Chinese economy weighed on the Hang Seng which declined by 227 points. The Chinese government has a lot of control over the availability of credit, not just the cost of money, so many are worried about the likely extent of an economic slowdown in that economy. In Japan, a report by the Japanese stock exchanges revealed that a record 21.8% of equities were owned by foreigners at the end of March 2004 (fiscal yearend). Foreigners investing in Japan are likely to focus mainly on equities with short term rates still at rock bottom levels and the JGB market still top-heavy.
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