Friday September 22, 2006 - 10:51:21 GMT
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Mellon Bank Foreign Exchange - https://fx.mellon.com/
Mellon FX Daily - U.S. EditionKey Points
â€¢ EUR-USD breaks key levels, turning bias to upside.
â€¢ Philly Fed weakness was the trigger.
â€¢ Better data out of Japan.
â€¢ EUR-GBP still hanging on to key support.
Positive price action from EUR-USD late yesterday, breaking through the 1.2740-50 resistance area and securing a close back above the 100-day MA at 1.2740. The weak headline Philly Fed number proved to be the trigger, with EUR-USD having failed at this area earlier in the day. In some ways it would have been preferable to see this move happening at a more liquid time of the day, but the move has been sustained and as it currently stands the bias has now shifted back to the upside. There has been positive followthrough in Europe this morning and there is scope initially up to 1.2885. A move back below the pivotal 100-day MA is now required to render this a false recovery and to reintroduce a bias to the downside. There is a chance of a bigger move on EUR-USD. Implied vols have been sliding lately and other instances of such low vol have tended to precede fresh spot moves (see chart).
As for the Philly Fed
survey, the number struck a chord with a market that is becoming increasingly sensitive to the prospect of a US slowdown. However, the one note of caution is that the Philly Fed does occasionally throw up some weak outcomes that are not sustained (e.g. Jan 2006, Jun 2005 â€“ see chart) so the market will be waiting to see whether this potentially weaker message from manufacturing is replicated in other data, especially the ISM survey due on Monday October 2. Also note that yesterdayâ€™s prices received number in the Philly Fed was the 2nd highest this year.
The MoF business survey in Japan
came in stronger than expected, with the manufacturing component (12.7) recovering to just shy of the recent high of 12.8 in September 2004. Indeed, the latest number is the 2nd highest reading since 1990 and allied with yesterdayâ€™s strong exports data would appear to suggest that conditions in Japan are not that bad. This supports the â€˜short JPYâ€™ liquidation theme, although EUR-JPY is retaining some support because of the upside break in EUR-USD. The immediate outlook for EUR-JPY is unclear (there is still some corrective risk on the downside) and EUR-USD developments over the next few sessions will be a key influence. EUR-GBP
has steadied this morning after having survived another test of long standing support in the 0.6705-20 area. A move above .6730-40 is needed to alleviate current downside pressure. Below 0.6700 would suggest downside risk towards 0.6600.
Data/event EDT Consensus*
BE Business confidence (Sep) 09.00 +2.9
Latest data Actual Consensus*
JP MoF manu survey (Q3) 12.7 +1.4 last
JP MoF all-industry survey (Q3) 10.5 +1.8 last
FR Hâ€™hold consumption (Aug) m/m +3.3% +0.5%
EU Manu orders (Jul) m/m +1.8% +1.0%
* 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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