Tuesday July 6, 2004 - 10:36:48 GMT
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DailyFX US Open Market Brief 07-06-04
Carry Trade Comeback?
One consequence of the weak US payroll number is the possibility that the Fed may not raise rates for the rest of the year. Should this thesis be true the carry trade will be back with a vengeance. NZD, AUD and GBP each carrying positive spreads against the greenback of 450bp, 400bp and 325bp respectively, have all enjoyed positive price action the last few weeks. With NZD economy growing at 2.3% in Q1-fastest in 4 ½ years and latest AUD employment data expected to be mildly positive some traders may feel that the carry trade crosses can offer not only positive yield capture but possible capital appreciation as well. Furthermore, having corrected over 1000 pips (AUD) and 600 pips (NZD) from their March highs, both currencies offer significantly lower entry points to traders willing to assume the present risk.
Overnight, the JPY ignored decent economic data including 9th consecutive positive reading of LEI numbers, as traders worried about possible Liberal Party loses in next Sunday’s Upper House elections as well as resurgence of oil prices above the $39 handle. GBP found some support off better then expected UK IP data. Meanwhile the surprise reduction in German unemployment to –1K vs. 10K expected did little to rally the EUR as labor situation in the Euro-zone remains stagnant.
Key Overnight Developments
- JPY economic data positive but traders focus on possible LDP loss of seats in next Sunday’s election
- German unemployment claims decline but retail trade almost twice as weak as expected (-1.3% vs.-0.7%)
- UK Industrial Production shows strength off improved global demand
FX Spot Overnight
- EUR trades below 1.23 on poor retail trade data
- JPY above 109 on geo-political uncertainty
- GBP gets little lift from good IP data but stays firm above 83 handle
- CHF trades above 2350 on some USD strength
12:30 GMT - (8:30 AM EST) GBP NIESR GDP Estimate (q/q) (Jun)
12:45 GMT - (8:45 AM EST) USD Fed's Broaddus Speaks on US Economy (North Carolina)
14:00 GMT - (10:00 AM EST) USD ISM Non-Manufacturing Index (Jun)
Expected at 64, Previous 65.2
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