Wednesday July 5, 2006 - 10:53:30 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Forex: Mellon FX Daily - U.S. EditionKey Points
â€¢ North Korea missile launch creates some market nervousness.
â€¢ Main focus remains on forthcoming CB meetings.
â€¢ More USD weakness favoured in the very shortterm.
â€¢ German service sector PMI soars on World Cup.
Equity markets have been unsettled overnight by the news that North Korea
test-launched up to ten missiles and this has also lent support to the USD. However, while there may be a further reaction to this later today, the main focus remains on forthcoming ECB and BoJ meetings as well as global market sentiment following last weekâ€™s Fed meeting.
downside is just about favoured, but it is questionable whether this will be sustained, given the risk that the BoJ either fails to move at all next week or only moves by 10-15bp instead of the 25bp being mooted in the market.
With the US slowly drifting back from holiday, after a subdued ISM on Monday there is every chance of some further strength in US equities and if this is the case then high-risk assets should continue to benefit. This may add to EUR-USD
appetite ahead of Thursdayâ€™s ECB outcome but 1.2850 is likely to be difficult to take out given the history of disappointments from ECB meetings. Near-term support is at 1.2735-40.
bounced back in Europe after testing lower through the Asian session. The market now has one eye on next weekâ€™s BoC meeting. However, the degree of confidence in a potential BoC rate hike will depend upon the outcome of Fridayâ€™s Canadian employment report. This number was very strong last month and in combination with the stronger than expected core CPI data raised the issue of a resumption in BoC tightening. In recent comments the BoC has been suggesting that one should be wary of one monthâ€™s worth of data, so whether last monthâ€™s labour market strength is repeated or reversed will be significant for BoC policy expectations. Support at 1.1035-40, resistance at 1.1100-05.
The PMI services number was very strong out of the Eurozone, with Germany in particular displaying strength, although the latter (up to 61.0 from 56.7) was almost certainly influenced by the World Cup and will not be seen as a permanent developnt.
Data/event EDT Consensus*
US Chain store sls (w/e Jul 1) w/w 07.45 -0.4% last
US Redbook sls (w/e Jul 1) m/m 08.55 +2.0% last
US Factory orders (May) m/m 10.00 0.0%
US ABC consumer conf (w/e Jul 2) 17.00 -10 last
Latest data Actual Consensus*
AU RBA rate announcement 5.75% 5.75%
IT PMI services (Jun) 60.3 61.5
FR PMI services (Jun) 61.6 60.8
DE PMI services (Jun) 61.0 57.3
EU PMI services (Jun) 60.7 59.0
GB PMI services (Jun) 58.7 59.0
EU Retail sales (May) m/m -0.6% +0.2%
* 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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