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Contributed Daily By
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News & Analysis:

January 10, 2:00 AM: EUR/$..0.9414 $/JPY..116.68 GBP/$..1.4922 $/CHF..1.6180

Euro and Yen Steady from Slide vs. Dollar by Jes Black

At 7:00 AM weekly mortgage applications (exp n/a, prev 219.9) 10:00 AM US November Wholesale Trade (exp 0.7%, prev 0.3%)

The euro and yen steadied against the dollar this morning in European trade. However, the euro is struggling to stay above the 94-cent level, while the dollar/yen is firm at around 116.60. Meanwhile, sterling edged higher against the dollar after the euro/sterling cross fell from a day's high of 63.47 pence to 62.98. Cable rose to a day's high of 1.4932, above yesterday's US close at 1.4895, but gains are seen limited amid wariness ahead of the BoE interest rate meeting on Thursday. Resistance is seen at around 1.4940 followed by 1.50. Swissy tracked the euro/dollar's move and rose to a high of 1.6210 before consolidating slightly below the 1.62 level.

The single currency finally recovered from two days of profit-taking which sent the euro/dollar to a global low of $0.9386 on Tuesday. After Friday's 6-month high of $0.9595, dealers began to lock in profits by unwinding long euro positions accumulated over the single currency's steep two-month rally of more than 14%. Analysts say that the single currency was also sold on frustration that it failed to break above the level of $0.9600, which it hasn't reached since June 20, 1999. Despite the recent consolidation, underlying sentiment still favors the eurozone where the economic downturn is expected to be less pronounced. Dealers say the market will move sideways until Friday, when key US retail sales and producer price data are expected to give clues to the health of the US economy and the timing of further rate cuts by the Fed. Dealers expect the euro to bounce back if retail sales report the expected drop of -0.6%.

In spite of the euro/dollar consolidation at around 94-cents, the euro/yen is hovering in the 109.50s, noticeably lower than yesterday's US close of 110.34. Nevertheless, the yen is likely to continue to suffer as Japan is mired in the vicious circle of falling stock prices and an economic slowdown. Overnight gains in the Nasdaq didn't help the Nikkei as the index ended down 177 points today, or 1.3% to close at 13432, its lowest level in nearly two years. This came after yesterday's loss of 1.85%. Iinvestors, both at home and overseas, are especially hesitant to enter the Tokyo market at this moment as the gloomy outlook in the Japanese economy persists. Moreover, the yen is likely to see a further deterioration after last week's comments from Financial Minister Miyazawa said a weak yen is good for Japanese exports.

Markets will also look to tomorrow's preliminary release of Germany's official estimate of 2000 GDP. It is expected to jump by 3.1% from sub 2.0% growth the past three years. Tomorrow's data will also provide economists with a clue about how much the eurozone grew in the fourth quarter of last year. It is expected to have increased by 1.5%. In comparison, the US economy has slowed from near 6% in Q2 to 2.2% in the Q3, the weakest quarter since 1996. The final revision was twenty basis points downward due to a further deterioration in the trade balance.

In other news, both German exports and imports slowed following exaggerated strength in the past months. However, Germany's trade surplus eroded as imports grew more than twice as much as imports did in November. The current account deteriorated to 6.2 billion DM from 2.6 bln in October. This is attributed to higher oil prices, which have been boosting imports, but the deterioration is set to slow as oil prices ease.

With little other economic data expected until Friday, the market's focus will be on profits. However, sentiment has moved markedly from joy to depression in recent weeks, as profit worries have caught hold of investors' attention again. Despite the Fed's surprise rate cut last week, investors have already priced in another cut from at the end of the month. European bourses are lower as Nokia declined another 4% dragging technology stocks with it. US stocks are also seen opening lower. Dow futures are down 60 points, while the Nasdaq is down 39.00.

January 10, 2:00 AM: EUR/$..0.9443 $/JPY..116.21 GBP/$..1.4892 $/CHF..1.6128

European Trading Preview by Jes Black

At 2:00 AM German Trade balance (exp 6.1 bln DM, prev 5.0 bln DM)

The yen roared back against the dollar as damaging rumors had been cleared up and dealers stopped selling yen so aggressively. Buzz of losses by Japanese life-insurance companies, and the lack of economic data during the day sent the yen to a fresh 17-month low of 117.14, then tumbled back to earth. However, the dollar's sudden fall sent dealers scrambling to lock in profits after the dollar/yen fell below 116 yen. The dollar/yen posted a day's low of 115.84 before climbing back to the 116.30s where it remains.

The single currency has also recovered from profit-taking which sent the euro/dollar to a global low of $0.9386 yesterday. Since Friday's 6-month high of $0.9595, dealers began to lock in some profits and unwound long euro positions accumulated over the single currency's steep two-month rally of more than 14%. Analysts say that the single currency was also sold on frustration that it failed for a third time in two days to break above physiological level of $0.9600, which it hasn't reached since June 20, 1999. The euro/yen also recovered from profit-taking which sent it to a low of 108.70 on Tuesday. It is now hovering around 110.10, aided by another fall in the Nikkei. Dealers say the yen will likely continue to suffer as market players doubt if Japan can break the vicious circle of falling stock prices and an economic slowdown. Despite overnight gains in the Nasdaq, the Nikkei ended down 177 points, or 1.3% to close at 13432, its lowest level in nearly two years. This came after yesterday's loss of 1.85% as investors, both at home and overseas, are widely seen hesitant to enter the Tokyo market as the gloomy outlook in the Japanese economy persists. Whether the yen will start to recover as the selling in Japanese stocks prompts Japanese investors to repatriate their funds ahead of the annual book closing in March is also unclear. Moreover, the yen is likely to see a further deterioration after last week's comments from Financial Minister Miyazawa said a weak yen is good for Japanese exports.

Failing to rebound against the dollar was sterling which is languishing around support at $1.4885. Cable's fall is due to the climb in EUR/GBP which rose to a day's high of 63.47 pence. Meanwhile, The Swiss National Bank said yesterday that it expected its currency would appreciate against the dollar in the next few quarters.

Euro activity will center around tomorrow's preliminary release of Germany's official estimate of 2000 GDP expected at 3.1% from 1.4% in 1999, providing economists with a clue on Q4 GDP. In other news, both German exports and imports slowed following exaggerated strength in the past months. However, Germany's trade surplus eroded as imports grew more than twice as much as imports did in November. The current account deteriorated to 6.2 billion DM from 2.6 bln in October. This is attributed to higher oil prices, which have been boosting imports, but the deterioration is set to slow as oil prices ease.

Finally, Euro-stocks are set to bounce after yesterday's Nokia-led nosedive. European shares closed mostly lower Tuesday, pressured by losses in technology shares after Nokia reported disappointing sales figures. But the markets improved from the day's lows after Wall Street's higher opening somewhat cheered European investors. The major US stock indexes diverged, with the Dow falling 48 pts to 10572 and the NASDAQ gaining 45 pts to 2441.

January 9, 7:00 PM: EUR/$..0.9434 $/JPY..117.05 GBP/$..1.4880 $/CHF..1.6132

Daily Open Japanese Trading Preview by Darko Pavlovic

No data coming from Japan today.

The dollar rises to 17-month highs of 117 yen in early Tokyo trading, its highest since July 1999. November household spending fell 1.5% after dropping 0.5% in October further undermining the yen. Nikkei closed down 1.85%, near a two year lows. Many analysts say that the slowdown in the US is contributing to the fall of Japan's export driven economy. The BoJ is getting increasingly concern about the economic outlook overseas. An official at the central bank said that falling stock prices in Japan have not hurt consumer spending, business sentiment or other elements of domestic demand. But although the BoJ remains relatively optimistic about the outlook for domestic economy the economic prospects of possible recession in the US and Asia distress the bank's officials. Next resistance level is seen at 117.20 followed by 117.45-50. The fact that the euro is off its 10- month highs vs. the yen, trading around 110.47, way off its 111.92 highs reflects the dollar strength. Japan's MOF Kuroda said in an interview with the Nikkei that the ASEM meeting will discuss regional financial co-operation, which would include the possibility of a creation of Asian currency swap agreement and reform of the currency system. Asian co-operation to reform the regional financial system would be a positive development, which could contribute to stability of the yen in the long run.

The dollar strengthens against the euro and reached 17-months highs vs. the yen, on expectations the Fed will further cut interest rates and avoid recession this year. The single currency reached last week highs of $0.9595 against the dollar to dropped to $0.9383 in today's New York trading, a decline over two cents in two days. It slightly rebounds to $0.9437 as many analysts justified the slide, due to profit taking after six weeks of the euro's powerful gains. While many analysts lowered their forecasts for the US economic growth this year, some expect that Fed will further cut interest rates to stimulate growth and prevent the economy from hard lending. In a surprise move last week the Fed cut interest rates by 50 bps to 6%. Yesterday, Atlanta Fed President Guynn said the expects the US economy to slow to at 3% growth rate this year before rising again and was favoring further interest rate cuts.

Central bank Governors from the Group 10 nations in a yesterday's meeting in Basel, Switzerland said the US is likely to avoid recession although the growth slowed. Many analysts expect further rate cut of 50 bps at next Fed's meeting on January 30-31. By the end of this year the interest rates could decrease by 125 bps to 4.25%. The next big test for the US economy as well as the dollar is data due on Friday. The US December retail sales probably fell 0.2% after a 0.4% drop in November, which should further boost the expectations of a rate cut.


January 9, 4:00 PM: EUR/$..0.9445 $/JPY..116.75 GBP/$..1.4890 $/CHF..1.6126

Euro Creeps Up, As Yen Backs Down by Ashraf Laidi

European currencies eased their consolidation phase towards late European trading as the euro bounced off its 93.80s cents support and into the 94.40s. In the absence of key economic data, FX players have exploited the euro's rise to multi-month highs and are now gearing up for another potential run-up in the currency as slowing US fundamentals remain the order of the market. German Dec unemployment fell to a fresh 5-year low in December to 3.77 mln, pushing the jobless rate to 9.2%. The euro's intraday comeback was also seen against the yen and the pound, with EUR/JPY rebounding nearly 2 yen to 110.34 yen and EUR/GBP bouncing back by half a penny to 63.4 pence.

Euro activity will center around tomorrow's preliminary release of Germany's official estimate of 2000 GDP expected at 3.1% from 1.4% in 1999, providing economists with a clue on Q4 GDP.

The rally in EUR/JPY once again fuelled $/JPY to fresh 16-month highs at 116.85 as the Japanese gloomy picture was once again highlighted by the euro's recovery.Whether the yen will start to recover as the selling in Japanese stocks prompts Japanese investors to repatriate their funds ahead of the annual book closing in March is unclear. Over the past few years, we've found no correlation between yen strength and buying activity ahead of the end of the fiscal year in March 31s. Instead, the most obvious correlation is between the yen and the Nikkei, both of which declined in concert. The Nikkei lost 30% of its value since the sell-off since last April, and the yen has follows suit, partly due to the capital outflows from the falling assets and the deteriorating economy. It is argued that the repatriation factor will take hold this time because Japanese investors, especially those owning foreign bonds, will gain from the capital gains (from falling interest rates) and from currency gains (falling yen vs foreign FX).

Sterling did not show its usual tracking of the euro, remaining adrift below the 1.4890s and nearing the 200-day moving average of 1.4850. Sterling activity will be underpinned by Thursday's Bank of England decision expected to produce no change in rates and Friday's scheduled release of November industrial production expected up 0.7% from the previous -0.2%.

The Swiss National Bank said today it expected its currency it "may especially post gains against the dollar in the next few quarters" using its assessment for a slowdown in US and European growth rates as the reason. The Bank said it saw no risk of inflation compared to its last assessment in June. Although M3 (money supply) rose by 0.2% in Q3 following consecutive declines in the Q4 99-Q 00 period, the Bank said the rise did not reflect any increase in inflation, which it expects to average 2.1% in 200. The Bank's current target for short-term interest rates is the LIBOR range of 2.0-4.0%. The SNB said it expected to keep its target rate unchanged for at least the next few months. 2001 GDP growth is seen at 2.2% and 1.6% in 2002 compared to 3.2% in 2000.

The major US stock indexes went into their separate ways, with the Dow falling 48 pts to 10572 and the NASDAQ gaining 45 pts to 2441. While most Wall Street economists expect the Fed to cut rates by an additional 100-150 bps this year, 2 regional Federal Reserve Bank Chiefs yesterday argued against a recession, indicating that growth was disappointing (Atlanta's Jack Guynn) and (Dallas Robert McTeer) doubting that Q4 growth had turned negative We have seen how the Fed used to act preemptively against inflation by raising rates when inflation was still contained. Today, is the opposite. The Fed is acting aggressively in order to tackle the existing economic slowdown as well as to counter further future declines in manufacturing and consumer confidence.

The single currency could gain further ground this Friday when US retail sales are released, expected to show a 0.1-0.3% drop in December after the 0.4% drop which shook off the dollar last month. The data will reinforce the deteriorating picture of falling consumer confidence, which has been amid the chief causes behind the rise in the euro.

Market sentiment still favors the euro despite the currency's 2-day drop vs the dollar. Technical currents are still in favor of the currency after it surpassed the key technical level of 95.50 cents (38% retracement of the drop from the $1.17 high to the 82.2 cent low). The recent backtracking is seen as a healthy sign, gaining steam before the next run-up. When a currency rallies unsustainably, it starts carrying the burden that it may be overbought. This decline is seen by many as a healthy consolidation that will give the currency buying potential to carry it towards the key 97-cent level, after which parity becomes an even more realistic target by the summer.

 

Article submitted 4 times daily by ForexNews.com, the online source for foreign exchange information.

ForexNews.com is a service provided by MG Financial Group.

MG Financial Group, a privately held company based in New York, has been offering internet FOREX market making services since April 1997. The focus of MG’s business is sophisticated self-traders. MG Financial Group clears over one billion dollars in transactions per month

 

 
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Last modified: April 04, 2001

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