http://quotes.ino.com/chart/?s=NYBOT_DXY0&v=sLast trade 85.22 Change +0.12 (+0.14%)
Settle 85.10 Settle Time 23:37
Open 85.21 Previous Close 85.10
High 85.26 Low 84.87
The March Dollar was lower overnight due to light profit taking as it consolidates below the 38% retracement level of the May-December decline crossing at 85.41. Stochastics and the RSI are overbought and are turning bearish signaling that a short-term top might be in or is near. If March extends this year's short covering rally, the reaction high crossing at 85.75 then the 50% retracement level of last year's decline crossing at 86.93 are the next upside targets. Closes below the 20-day moving average crossing at 83.71 would confirm that a short-term top has been posted. Overnight action sets the stage for a steady to weaker tone in early-day session trading.
The March Euro was slightly higher overnight as it consolidates above the 50% retracement level of the April-December rally crossing at 127.290. Stochastics and the RSI are oversold, diverging and are turning neutral hinting that a short-term low might be in or is near. If March extends this year's decline, the 62% retracement level of the April- December rally crossing at 125.037 is the next downside target. Multiple closes above the 20-day moving average crossing at 130.016 are needed to confirm that a short-term low has been posted. Overnight action sets the stage for a steady to firmer tone in early-day session trading.
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The March Canadian Dollar was slightly higher overnight as it consolidates above the 38% retracement level of the May-November rally crossing at .7988. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short-term low might be in or is near. If March extends January's decline, the 50% retracement level of the May-November rally crossing at .7822 is the next downside target. Closes above the 10-day moving average crossing at .8040 would signal that a short-term low has likely been posted. Overnight action sets the stage for a steady to firmer tone in early-day session trading.
The March Japanese Yen was higher overnight due to short covering as it consolidates some of Tuesday's decline, which spiked below the 38% retracement level of last year's rally crossing at .9494 and December's low crossing at .9476. Stochastics and the RSI are bearish but becoming oversold hinting that a low might be near. Multiple closes below December's low crossing at .9476 would confirm a downside breakout of this winter's trading range while opening the door for a possible test of the 50% retracement level of last year's rally crossing at .9374. Closes above the 10-day moving average crossing at .9624 would temper the near-term bearish outlook in the market. Overnight action sets the stage for a steady to firmer tone in early-day session trading.
Dollar's rise against euro may be tough to sustainhttp://www.iht.com/articles/2005/02/08/business/dollar.htmlSkeptics question value of Bush budget cuts
FRANKFURT Buoyed by signals that the United States may finally be willing to stomach a serious round of fiscal belt-tightening, currency traders are giving the dollar a reprieve - for now - from the relentless downward pressure of recent months.
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Aiding the dollar's new attractiveness is the backdrop of anemic growth in Europe and persistent deficits among members of the 12-nation euro zone, analysts and economists said.
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"Currency traders think in relative terms, and for now the United States is making a harder effort than France or Germany on fiscal consolidation," said Stephen Jen, a currency analyst with Morgan Stanley in London.
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A deep vein of skepticism persists in currency trading circles, where the conviction remains that the dollar will eventually sink this year, possibly as low as $1.40 to the euro.
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"We've had a short-term deviation from what is a long-term trend," said Neil Mellor, a currency strategist with Bank of New York in London. "The current-account deficit is not just going to go away," he said, referring to the broadest measure of the U.S. trade deficit.
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Statements such as one attributed to Vice President Dick Cheney that former President Ronald Reagan "proved that deficits don't matter" have become unthinkable, said Audrey Childe-Freeman, the chief Europe economist for CIBC World Markets in London.
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GBP Climbs on Data, USD Stalls http://www.forexnews.com/NA/default.aspAt 10:00 AM US December Wholesale Inventories (exp 0.9%, prev 1.1%) US December Wholesale Sales exp n/f, prev 0.7%)
At 11:00 AM US Fed Board Governor Gramlich Speaks At 7:15 PM NY Fed President Geither Speaks The dollar’s latest rally stalled overnight on a combination of profit taking and traders digesting a report questioning Fed Chairman Greenspan’s optimism over the US current account deficit. The dollar relinquished some of its recent gains, retreating to 1.8642 against the sterling, and 1.2798 versus the euro.
Fed Watcher John Berry, in an editorial, said that currency markets had misinterpreted Fed Chairman Alan Greenspan’s speech last Friday on the US current account deficit. Berry said there were several reasons Greenspan had cited for why the deficit would not shrink. The main reason was the large discrepancy between imports and exports, in which exports would need to grow half as quickly as imports in order to prevent the deficit from widening. While the market sold the dollar on the report, traders will likely wait for the release of December’s trade data on Thursday prior to accelerating further moves.
Sterling Jumps on Data
UK’s trade deficit unexpectedly narrowed in December, declining to 4.43 bln sterling, and besting forecasts for an increase to 4.8 bln sterling from November’s 4.71 bln sterling. Moreover, manufacturing surged by 0.6% m/m and 1.1% y/y, considerably better than forecasts for a 0.3% monthly increase and a 0.1% annual gain. As a result, UK’s ONS said the latest data would raise Q4 GDP growth estimate by 0.1%, ceteris paribus.
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USDJPY Trades Sideways
Bank of Japan board member Suda said earlier in the session the Bank may soon need to adjust policy and permit a breach of its current account deposits target. Suda said that lowering the current accounts deposits target would be construed as policy tightening, but was a possibility if seen as a technical move and the economy was strong. However, he said that lowering the c/a deposits target now would be detrimental since the economy is stalling. Moreover, Suda said that changing conditions for ending quantitative easing would hurt BoJ credibility.
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The Year of the Yen http://www.forexnews.com/AI/default.asp2004 may have been known as the year of the euro. 2005 might as well be the year of the yen, or at least the beginning of the yen’s long awaited bull run. Rationale: Japanese authorities cannot afford stacking their $700+ billion chest of US treasuries when the dollar is expected to shed more of its value after an 18% decline in trade-weighted terms over the past 3 years. A gradual Japanese retreat from US dollar securities into non-dollar assets is inevitable in order to avoid massive losses on the central bank’s US dollar portfolios.
Dollar losses are not only confined to Japan. The European Central Bank is expected to take a loss of at least $1.3 billion on its US dollar holding as a result of the euros appreciation against the US currency. The ECB had already booked a $625 million loss in 2003 due to the falling dollar. The People’s Bank of China has the second biggest armory (after Japan) of foreign exchange reserves at $600 billion in 2004. The NY Federal Reserve estimates that a 10% rise in the Chinese yuan would trigger a drop of about 3% of the nation’s overall GDP. Several central banks have started the adjustment process into euros since 2 years ago. Russia already began shifting its currency within the past two years from 12-15% holdings in euros to 25%. A move to 50%-50% dollar-euro proportion is inevitable.
Japan see no choice but to follow suit. Leading the world in holdings of US treasuries amounting to $715 billion in November, Japan loses $7.2 billion for each yen lost against the US dollar. A drop to 97 yen from 103 would inflict a $43 billion hole in Japan’s portfolio of US assets. That explains the drop in Japanese holdings of US treasuries between September and October of last year--the first month-to-month decline in three years. See chart below:
Japan should especially start lightening its hand from US assets before China initiates the fray when it eventually revalues its currency and sees less of a need to purchase US dollars in intervention over time. Despite mounting pressure from Europe and the US to revalue the yuan, China isn’t likely to succumb to these demands and compromise its economic engine for the sake of prematurely liberalizing its financial markets. We expect China to follow up on last year’s rate hike so as to contain inflation at its implicit 5% target and to avoid policy over-stimulus. Only a successfully implemented revaluation—likely in Q1 2006-- could then lead to a subsequent 2-3% upward move with a similar band, thus creating a crawling peg currency regime, i.e. periodic revaluations thereafter. This would pave the way towards an eventual basket peg, whereby the yuan is pegged against the dollar, euro, yen, Aussie and a few other Asian currencies. Such an arrangement would be most ideal for avoiding sudden fluctuations, which are more typical of single currency pegs, especially with China’s disparate trade balances against the currencies involved.
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