Monday August 23, 2004 - 09:27:02 GMT
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US OPEN MARKET POINTS 08-23-04
US OPEN MARKET POINTS 08-23-04
Published By: Boris Schlossberg, Fundamental Analyst
The dollar is mildly stronger against both the euro and the yen on Monday as traders anticipate that US eco data this week will be stronger than expected while reports from the Euro-zone and Asia may surprise to the downside. The marquee eco number from US will be Wednesday’s Industrial Production report. Bloomberg consensus is for an increase of 1.3% over the previous month but CALYON research projects a larger rise of 1.5% due to a surge in new plane orders from Boeing (74 vs. 14 in June). With most recent IMM data showing a rebuild of dollar shorts by the speculators (the net speculative position in EUR recovered to 49k contracts from 32k, just shy of the July peak of 56k) any positive surprise in US economic data will likely force a short covering rally to the 2200 and possibly the 2100 handle in the EUR/USD.
Meanwhile the major European release this week is the IFO survey with the consensus calling for decline to 95.1 from last months 95.6. Given the fact that last week’s ZEW survey - which closely correlates with IFO - disappointed by printing 52 vs. 55.1 expected, dealers short the euro show little fear of an upside surprise. The rise in oil is weighing heavily on European business sentiment and most market participants expect it to have a negative impact on the IFO.
In Asia, the yen is slightly weaker against the dollar after a strong week that saw it gain 110 points despite persistent rise in oil prices. Last week the market assumed that Japanese economy could absorb oil prices up to $50/bbl and decided to focus instead on better than expected eco numbers such as Friday’s 0.8% print in the Tertiary Industry Index versus 0.4% expected. This week’s economic data may not be so favorable to the yen. UBS for example, expects Friday’s CPI number to report –0.2% vs. 0.1% which would dishearten investors waiting for evidence that Japan is emerging from the deflation era. Even if the yen were to strengthen this week it is now within 100 points of the critical 108 handle -- a level well known to attract the interest of BOJ which views it as the Maginot line between growth and stagnation for the export-driven Japanese economy. If fundamentals warrant, the yen will of course break the 108 barrier eventually but in the meantime traders positioning in the pair should take care.
We do not feel that any up-tick movement in the dollar this week is indicative of new uptrend for the greenback. Ultimately we feel that the ugly reality of a slowing economy will force the dollar it to resume its downward slide. However, this week the dollar may indeed see a bounce if any economic data is even mildly positive.
Key Overnight Developments
- JPY Nikkei up .66% to 10,960.97 briefly trades above 11,000 during the session
- GBP Hometrack Survey shows England –Wales house prices decline –0.1% m/m due to higher interest rates
FX Spot Overnight
- EUR trades 2315-2287 holding Friday’s lows for time being
- JPY slips back above 109.40 as stops are triggered
- GBP continues slide on weak housing data falling all the way to 8130
- CHF trades 2515-2540 holing the 2500 handle
12:30GMT – (8:30 AM EST) CAD Retail Sales m/m (June) Expected at 0.0%, Previous 0.5%
12:30GMT – (8:30 AM EST) CAD Retail Sales Less Autos m/m (June) Expected at 0.1%, Previous 0.5%
CAD BOC Deputy Governor Longworth speak on Monetary Policy
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