Monday July 26, 2004 - 10:56:28 GMT
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US OPEN MARKET POINTS 07-26-04
Dollar Bears: Crying Uncle Yet?
Dollars furious surge against the majors last week decimated the profits of many USD shorts. In absence of any important eco data, dealers aided by Alan Greenspan’s cheery testimony, ran stops all the way to the 2100 handle. When the dust settled, the greenback gained 2.9% against the euro for the week, it biggest rally in 6 months. According to CME’s Commitment of Traders Report as of last Tuesday EUR long positions had reached their highest levels for both 2003 and 2004. With the market so heavily short dollars, the squeeze produced a massive 360 pip move in just 4 days.
Is the pain for USD bears over? Probably not yet. Certainly the overnight data offers little support for USD shorts as Japanese Department Stores sales disappoint by reporting a decline of -5.4% against an expected decrease of only -2.4%. Combined with poor showing in supermarket sales (-4.1%), Japanese data is still reporting anemic consumer demand without which sound economic recovery and stronger JPY are not possible. Meanwhile, in the Euro-zone the slightly smaller then expected gain in Current Account surplus is not helping to advance the USD bearish case.
One of the characteristics of this seemingly interminable 4 month price channel in the majors has been its tendency to trade through the boundaries and then reverse. Only after the last hardened bulls or bears had capitulated, does price turn around and head for the other end of the range. This type of price action has been largely caused by inconclusive eco data which prints positive one month and turns negative the next. Indeed, UBS is expecting the same dynamic this week by calling for a strong rebound in the US durable goods number due out Wednesday which could push the EUR/USD all the way below the 1.20 handle. However, by Friday, if GDP reports slower growth of 3.7% versus last quarters 3.9% rate, the dollar run may finally come to a halt. At that point we may finally see once again the bottom of the trading range.
Key Overnight Developments
- JPY Department store and Supermarket data disappoint raising questions about the strength of Japanese recovery
- EUR Current Account slightly below expectations with exports leading the gain
FX Spot Overnight
- EUR bounces off 2100 handle but hits resistance at 2150 after mediocre CA data
- JPY opens strong in Japan but fades in Europe back to 110 level after bad retail store data
- GBP enjoys the strongest bounce of all majors nearly touching the 8400 handle before receding slightly
- CHF spikes all the way to 2650 on USD strength before finding support at 2600
12:30GMT - (8:30 AM EST) CAD Retail Sales (m/m) (May) Expected at 0.4%, Previous 1.0%
14:00GMT - (10:00 AM EST) USD Existing Home Sales Expected at 6.65m, Previous 6.80m
17:30GMT - (1:30 PM EST) Kansas City Fed President Hoenig in Denver "Monetary Policy and the Economic Outlook"
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