Thursday September 21, 2006 - 10:10:41 GMT
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Black Swan Capital - www.blackswantrading.com
More EURUSD range in the cards? Maybe!
â€˘ Japan's trade surplus was sharply higher in August. (Reuters)
â€˘ Key Reports (WSJ):
8:30a.m. Initial Jobless Claims.For Sept 16 Wk. Previous: -5K.
10:00a.m. Aug Conference Board Leading Indicators. Previous: -0.1%.
8:30a.m. Aug Retail & Food Sales. Previous: +1.4%.
10:00a.m. DJ-BTMU Business Barometer. For Sep 9 Wk. Previous: +0.3%
12:00p.m. Sept Philadelphia Fed Business Index. Previous: 18.5.
â€śEternal nothingness is fine if you happen to be dressed for it.â€ť
FX Trading â€“ More EURUSD range in the cards? Maybe!
Is the Fed done? It appears increasingly likely! Is the ECB done? Based on the hawkish statements of late from ECB banking types it would seem not. But weâ€™re not quite sure why they are so hawkish on the European recovery or the concern about inflation now that commodities and energy seem to be under assault. But what we think and what central banks do are two very separate realitiesâ€”weâ€™ve learned that too many times to count.
The key question: Does a belief the Fed is done and the ECB isnâ€™t set the stage for grinding rally higher in the euro?
â€˘ Euro will be helped by closing yield differential if the ECB hikes
â€˘ Euro will be hurt if growth doesnâ€™t materialize and ECB hikes are seen as growth dampeners
â€˘ If the EURYEN cross keeps rising, it will likely hurt European growth i.e. export competition
â€˘ If Mr. US consumer fools the punditry again, dodging the housing bullet, it will likely support US growth outlook and US stocks; and that looks increasingly likely given:
a) Falling energy prices effectively bolster consumer spending
b) Falling energy and commodities prices help corporate margins
c) If corporate margins are healthy (and we know corporations still have plenty of cash), jobs will likely be well supported
d) Interest rates are slowing monetary growth, but still not a major drag
Thus, if the US stocks rally in here (and letâ€™s not forget the relative yield on the dollar will still beat the euro by a wide margin even if the ECB hikes) it will attract international capital into the buck
So, does the euro grind higher on an ECB rate hike? Maybe! But keep in mind, there is also a good case for the dollar to remain very well supported. And that may mean we may have to live with this EURUSD range for a while longerâ€”at least.
Jack Crooks, Black Swan Capital Black Swan Subscription-based Service
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