Tuesday May 4, 2004 - 21:05:59 GMT
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Hawkish or Dovish, Take Your Pick
The FOMC did pretty much exactly what everyone was thinking, by keeping rates on hold but changing the rhetoric. The statement last time read “the Committee believes that it can be patient in removing monetary policy” to “the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.” If you are reading between the lines the FOMC is saying “yes, we will hike, but only slowly and probably in 25bp increments.” You could say this is dovish. The second issue was the balance of risk statements. Both were left neutral. We started the day awaiting the US factory orders which came in much better than expected. The market from this point on up until the FOMC announcement was in a range of 1.2062-1.2105. After, the number we were in a see-saw of 1.2055-1.2123. The thinking here is although euro is much higher and has broken major resistance levels on the way up in the last 24 hours, we could still be headed lower, it is most guess that this was priced into the market. The dollar although weak still seems that as though we could be forming a base at 1.2800. The cross once again was a major cause of havoc as we reached a high of 133.00, we can see a major retracement here back to 131.25 possibly. USDJPY below 109.50 could be lethal in a move back to 108 handle. The greenback below 1.2780 is a bearish move and could lead us to 1.2730.
TECHNICALLY SPEAKING: The cross is in overbought territory and we could see a major reversal here after it made a new high. The slow stochastic is reading 28.35 and the RSI is reading 45.60.
GAIN AN EDGE: We look to sell eurjpy at 132.65 with a stop above the high at 133.05; we look to take profit at 131.25. Today was as confusing as it gets in the currency markets, it began with a bad Housing Starts number that was four percent worse than expected and was the worse housing number in many months. Euro/Jpy was the driving force today that saw the highs of 135.10 quickly erode once 134.80 was breached and this dragged Euro lower and put pressure on Dollar/Jpy on a day where the Dollar should have preformed very well. The terrorist premium has been brought back to the forefront with any mention of Al Qadea and the threat to U.S interests or their allies abroad. Simply put the markets are a mess. Euro traded just before the N.Y open to session highs of 1.2375 before plunging to 1.2230 on the back of terrorist threats and the Feds decision to keep a rate hike on hold for the time being. The Fed said that Job growth is sluggish and inflation may remain low, which many traders took as rates will remain on hold for longer than they had anticipated. As we approach the end of the month and the end of the Japanese fiscal year. This has led many speculative traders to wonder what action the BOJ will take after March 31st to prevent the slide of the Greenback. Tomorrow brings more U.S data with the release of CPI at 8:30.
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