Wednesday July 28, 2004 - 10:42:07 GMT
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US OPEN MARKET POINTS 07-28-04
Coming Closer to Value
Two days ago we asked, “Is the pain for USD bears over?” and answered “Not yet.” Our caution was well warranted as yesterday both the euro and the pound collapsed from better then expected Consumer Confidence numbers (106.1 vs. 101). The euro lost 150 points while sterling dropped 240. The deluge was not surprising. As of yesterday’s US Open our proprietary positioning indicator showed euro bulls outnumbering dollars bulls by a margin of 3:1. The fact that this imbalance occurred fully 300 points below the euro’s most recent high, suggested that the market was still overweight euros and the final round of stop triggering was yet to come.
Consumer Confidence which was responsible for the dollar rally is essentially a glorified popularity poll. It is a “soft” economic number which measures feelings not actions. Today’s US Durable Goods Order and Friday’s GDP, both of which provide hard evidence of economic activity, will give traders a more accurate view of the US economy. At this point, even if the numbers report to the upside, they would have to materially exceed expectations to generate additional momentum for dollar bulls.
For all the talk of Fed tightening, both BoE and RBNZ are expected to raise rates in the near term preserving their advantage of wide interest rate differentials. Additionally, the record Federal deficit of $420 Billion along with a Current Account deficit in excess of $500 Billion will act as structural counterweights to any meaningful dollar rally. Thus, as prices probe the lower end of the familiar trading range at 1.19-20 EUR 1.80-82 GBP, the pain of USD bears may indeed be over as soon as traders reassess the extent of the recent dollar move and set up to re-bid the majors.
Key Overnight Developments
- JPY Retail Sales disappoint (-4.9% vs.-4.5% expected) but declines may be structural as more trade moves to the Net
- EUR M3 unexpectedly grows to 5.4% stoking inflation fears but FRF PPI prints 0.0% as expected
- Crude hits 42.20 in after market trading as Yukos says it may halt production
FX Spot Overnight
- EUR breaks through 2030 support as dealers gun for 2000 handle off disturbing M3 data
- JPY loses 111 as exports offers not enough to offset bad Retail numbers and rising oil prices
- GBP loses 8200 on heavy selling by German and Swiss banks but snaps off 8150 level
- CHF approaches 2800 as dollar run relentless
12:30GMT - (8:30 AM EST) USD Durable Goods (June) Expected at 1.5%, Previous –1.8%
12:30GMT - (8:30 AM EST) USD Durable Goods ex-Transport (June) Expected at 1.4%, Previous –1.4%
18:00GMT - (2:00 PM EST) USD Beige Book (June)
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