Tuesday January 3, 2006 - 11:41:20 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - U.S. EditionKey Points
• Market looking for answers to questions over relative cyclical strengths in the US and Eurozone.
• EUR-USD downside favoured over coming month.
• However, the ECB meet next week so extreme data could affect sentiment.
• US ISM and FOMC minutes feature today.
has been generally firm through the night, briefly reaching its highest level since December 28, although there doesn’t appear to be much conviction to trading at the present time. Japan is also on holiday today. The market remains uncertain about whether or not US cyclical arguments are about
to fade, possibly being replaced by a stronger interest rate background in the Eurozone. The data flow this week will be assimilated and interpreted with this question in mind. Overall, as it currently stands, US cyclical support looks alive and well and we would be unwilling to bet against this until there is solid evidence about the emergence of weaker US data. On this basis, EUR-USD downside is favoured over the coming weeks.
However, if there is any very strong Eurozone data this week, it could spur ECB
rate hike sentiment ahead of next week’s meeting. A rate hike seems unlikely as it would undermine the rhetoric advanced about there not being any pre-planned series of rate hikes. However, market sentiment on the issue may still be influenced by strong data. All the ECB has said is that rate hikes are not pre-planned, which in theory does not preclude hikes in response to ongoing data developments.
Eurozone manufacturing PMIs this morning continued to show improvement over recent months, while there was a very sharp drop in German unemployment. However, there is uncertainty about whether this fall was genuine or due to some kind of distortion in the data. US manufacturing ISM and the FOMC minutes (see below) could also influence matters today. 1.1930 is the first resistance level on EUR-USD, with support at 1.1775 – the range that has held it since Dec 21.
– ISM manufacturing is likely to further demonstrate the positive momentum in the US economy, while the Dec 13 FOMC minutes will be watched for any indications about when there will be a pause in tightening. With the statement having changed the markets will be interested to see how much this will affect policy. A key phrase used in the last statement related to the need for “some further measured policy firming”, which conceivably covers several permutations. Observations about the underlying inflation threat and the status of the housing market will be important in this regard. Overall, the likely conclusion is that all will depend upon the data, which for the moment remains strong.
Data/event EDT Consensus*
JP Market holiday
US ISM manu (Dec) 10.00 57.5
US Minutes of Dec 13 FOMC 14.00
US ABC consumer conf (w/e Jan 2) 17.00 -10 last
Latest data Actual Consensus*
DE Employment (Dec) +15k -4.0k last
DE Unemployment (Dec) -110k +5.0k
FR GDP (Q3, final) q/q +0.7% +0.7%
CH PMI manu (Dec) 56.9 58.5
IT PMI manu (Dec) 54.1 52.4
FR PMI manu (Dec) 52.2 52.3
DE PMI manu (Dec) 53.6 53.4
EU PMI manu (Dec) 53.6 53.2
GB PMI manu (Dec) 51.1 50.8
* Consensus unless stated
2005, Mellon Financial Corporation Note: Although obtained from sources believed by us to be reliable, Mellon Financial Corporation and its affiliates cannot guarantee the accuracy or completeness of the information upon which this report is based. This report does not purport to disclose the risks or benefits of entering into particular transactions and should not be construed as advice in any specific instance. The views in this report constitute our judgement as of this date and are subject to change without notice.
Ian Gunner 44 20 7163 5996 06.40 EDT Monday May 31 2005
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