Monday June 19, 2006 - 10:40:00 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - U.S. EditionKey Points
â€¢ EUR-USD weaker but key range levels remain intact.
â€¢ Asian currencies softer on combination of factors including N Korea/Japan stand-off.
â€¢ Not much scheduled for this week â€“ market is basically waiting for next weekâ€™s FOMC decision and what they signal about the future.
â€¢ US NAHB housing index features today.
Market uncertainty is likely to remain high throughout the course of this week and this will leave the risk of a stronger USD, although 1.2500-30 will need to break on EUR-USD to prompt some action. Latest IMM positioning data showed spec net (EUR) longs falling back from recent record highs, but at 61,846 contracts this is still high and there would be vulnerability from further liquidation pressure if certain levels (i.e. 1.2500-30) give way. 1.2685-1.2725 is the main barrier to upside progress.
There is very little of any major interest scheduled for this week and the market will essentially be waiting for next weekâ€™s FOMC decision. While the market has increasingly come to expect a further hike in the funds rate on June 29 (which seems highly likely after the rhetoric adopted by the Fed over the past few weeks) the bigger anxiety will be about what is said in the statement and the signals that are sent about what may happen to rates in the future. Global markets will remain nervous until there is greater confidence in the notion of a peak in US rates, preferably with minimal damage to growth prospects. The fear will be that if the recent anti-inflation rhetoric from the Fed is preserved, it may be difficult for them to offer any immediate assurances on rates.
The JPY and regional Asian currencies have been the main losers overnight. In addition to general market uncertainty there has also been a war of words between Japan and North Korea about a proposed missile test by the latter. Japan has said that Tokyo and Washington would respond harshly if such testing is carried out. Fridayâ€™s announcement by China about an increase in reserve requirements has also added to the shaky sentiment, although China had signalled the likelihood of such a move earlier last week after the release of very strong credit numbers. USD-JPY has eased above the first resistance point at 115.50, but this is part of a resistance area stretching up to 116.60.
The first day of a generally quiet week for economic releases, especially in the US. The main focus today will be the NAHB housing market index
and the market will be keen to see whether last monthâ€™s sharp fall to an eleven year low has been sustained. Of course, the Fed has previously highlighted the housing market as an area of vulnerability for the consumer and domestic demand in general over the coming year, so they will be closely monitoring data such as this. While they are naturally concerned about the recent pick-up in inflation they are also looking for signs of eventual growth moderation and the housing market will figure highly in how those expectations develop. The Fedâ€™s Guynn speaks and it seems likely that he will reiterate the concerns he proffered a couple of weeks back about recent inflation developments.
Data/event EDT Consensus*
CA Net portfolio balance (Apr) 08.30 -C$5.8bn last
CA Wholesale sales (Apr) m/m 08.30 +0.4%
US Fedâ€™s Guynn speaks on economy 09.30
US NAHB housing index (Jun) 13.00 45
Latest data Actual Consensus*
GB Rightmove house prices (Jun) y/y +6.4% +5.9%
CH Ind prod (Q1) y/y +9.2% +7.0%
EU Trade balance (Apr, sa) -â‚¬0.9bn -â‚¬1.0bn
* 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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