Monday June 5, 2006 - 10:34:36 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - U.S. EditionKey Points
â€¢ EUR-USD tests higher but key levels likely to remain intact early this week.
â€¢ ECB policy outcome and G8 meeting are this weekâ€™s main features.
â€¢ US non-manufacturing ISM due today.
has remained generally firm through the European morning, with the market fairly keen on testing the upside following last weekâ€™s data disappointments in the US. However, while todayâ€™s US non-manufacturing ISM data will have some market moving potential, the 1.2970-1.3000 area will be difficult to take out ahead of the key events scheduled for later this week â€“ ECB meeting outcome on Thursday, US trade data and G8 meeting on Friday. Data released on Friday showing IMM positioning as of last Tuesday put net longs on speculative accounts at a new record level of 79,884 contracts, an indication that many short-term accounts have already bought into the stronger EUR-USD trade. Initial short-term support is at 1.2870-85.
It is our view that the ECB see the need for higher interest rates as their top priority and that this will lead them to raise rates by 50bp this week. However, they will be naturally concerned about the consequences of a significantly stronger EUR-USD and on this basis there is a chance of some council members deciding that such a move is too risky. If they do go with their natural monetary policy instincts and hike by 50bp they will therefore need to have some kind of Plan B to try and deal with the EUR and this may see Trichet repeating the comments he made at the press conference of the last ECB meeting i.e. that the recent G8 statement was not aimed at EUR-USD. Trichet said at the time that the Eurozoneâ€™s role in addressing global imbalances was to boost growth, adding that this would not be best served by a stronger EUR-USD. The Eurozone contingent may also push this line of argument at the 2-day G8 meeting, which begins on Friday. Japanese vice-finance minister Hosokawa said this morning that global imbalances would not be a major topic at this meeting.
PMI services data was again stronger than expected and this will help to maintain market suspicions about the possibility of higher MPC rates at some point in 2006. Such high-50s readings on PMI services have in the past been associated with periods of rising MPC rates. The latest BRC retail survey is due tonight and a strong number is probably discounted given other evidence about higher spending on TVs etc ahead of the World Cup.
â€“ non-manufacturing ISM is the main data feature and the market will be keen to see whether this reflects the softer tone to last weekâ€™s ISM for the manufacturing sector. It will be an additional factor determining sentiment about the outcome of the next FOMC meeting, but a strong number will be required to counter the recent move in sentiment after last weekâ€™s softer data (payrolls as well as ISM manufacturing). Last month, the non-manufacturing ISM rose to its highest level (63.0) since August last year.
Data/event EDT Consensus*
Holiday in some European markets (not UK) and New Zealand
US ISM non-manu (May) 10.00 60.0
Bernanke, Trichet and Muto in panel discussion 14.15
GB BRC retail survey (May) y/y 19.01 +6.8% last
AU Housing finance (Apr) m/m 21.30 +0.8%
AU Current account (Q1) 21.30 -A$14.8bn
Latest data Actual Consensus*
JP Capital spending (Q1) y/y +13.6% +7.0%
AU ANZ job ads (May) m/m +7.7% -5.0% last
GB PMI services (May) 59.2 58.9
* Consensus unless stated
ï›™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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