Tuesday, June 07, 2005

Daily FX :: Euro Holds the Bounce

Euro Holds the Bounce

Written by Boris Schlossberg Senior Currency Analyst
Tuesday, 07 June 2005 GMT
Because of a very light economic calendar trading tonight is dominated by
official commentary which is providing a mild bid tone to the EUR/USD.
Overnight, Chairman Greenspan failed to inspire the markets with cautious
wording that clearly reflected his concern over the latest weak NFP
numbers as well as frustration with the continuous flattening of the yield
curve in the bond market.

A flat yield curve occurs when the longer dated fixed income securities
trade at a very narrow spread to the shorter term instruments and
indicates that the market is anticipating a slowdown or even a recession.
Mr. Greenspan’s comments last night offered no strong arguments to combat
that opinion, so the FX market seized on the idea that Fed rate hikes may
top out at 3.5% in a few months time which would be dollar bearish because
it would cap the carry trade advantage the greenback now enjoys against
the yen and the euro

On the euro side, comments by Michael Deppler Director, of the European
Department of International Monetary Fund that the ECB may not need to
lower rates just yet, helped convince the market that the euro yields will
not fall in the near future. Mr. Deppler noted that that if growth does
not pick up by Q3 then a cut would be valid. “It is appropriate for
Eurozone rates to stay on hold as the slowdown seems temporary”, he said.
According to analysts at IFR this idea appeared to have been the best
compromise yet between those looking for rates to be held and those who
urge the ECB act quickly and helped to buoy the euro in morning trade.
Incidentally, Mr. Deppler also stated that 1.20-1.30 range was just about
right for the pair, a view with which we concur as we believe the EUR/USD
will now enter a protracted period of consolidation and range trading
because neither currency offers strong value.

Meanwhile both yen and pound have also rallied against the greenback
despite less then stellar eco data overnight. In Japan, Household Spending
declined to –3.0% on year over year basis – more than the –2.0% projected
drop. Japan remains gripped in the hands of deflation and progress is
small and slow. In UK the worst decline in housing prices in 7 months did
not prevent sterling from reaching the 1.8300 figure only 2 days after it
nearly broke through the 1.8100 level. The dollar is overbought and it
look like the market will be a lot more forgiving towards the majors this
week than the greenback.

Daily FX :: Dollar Bull Lost Its Horns

Dollar Bull Lost Its Horns

Written by Sam Shenker Technical Currency Analyst
Tuesday, 07 June 2005 GMT
Technical Overview

• Antipodeans post the biggest gains against US dollar
• Canadian dollar crosses reverse their loses
• Yen crosses give back some of their gains

Previous session overview:
Dollar continued to lose ground to the majors with Antipodeans posting the
largest gains among the majors.

EUR/USD – Euro bulls managed to push their way deeper into the dollar held
territory with the latest move about to break above the 1.2300 figure. As
the euro longs continue to recapture some of the previously lost territory
the move toward the 1.2500 figure will be a critical development for the
single currency, but a break above 1.2500 will most likely will be capped
by the 1.2700-30 range a strong resistance which marked the previous 2005
low. Also traders should expect quiet a few exotic option strike barriers
to be placed around the 1.2500 figure, making it a perfect target for the
institutional traders to aim for. Indicators signal a maturing trend with
ADX (DMI) on the daily chart is at 46.3. Stochastic remains oversold on
the daily chart at 14.86, which is indicative of a strong trend. The
Stochastic on the dealer (4HR) chart is neutral at 34.42. RSI is treading
above oversold on the daily chart at 30.19 with the 4-hour chart RSI
neutral at 45.28. MACD remains deep below the zero line on the daily chart
and is sloping upward toward the zero line on the dealer 4(HR) chart. In
case the reversal fails greenback longs will most likely resume their
advance and push the pair toward the psychologically important 1.2000
figure.

Key Levels

Level
Resistance
Details

1.2393
Major
23.6 Fib of the 1.3129-1.2165 dollar rally

1.2342
Intermediate
June 3 daily spike high

1.2293
Minor
June 6 daily high

Level
Support
Details

1.2163
Minor
June 1 daily spike low

1.2124
Intermediate
Sep 20 daily spike low

1.2027
Major
Sep 8 daily spike low

GBP/USD – British pound traders remained supportive of the cable as the
pair made its way toward the 1.8300 figure and is currently setting its
sights on the 1.8500 figure. A move toward the 1.8500 figure will most
likely see cable longs encounter stops placed by the dollar longs above
the 1.8400 figure with exotic option barriers most likely placed around
the 1.8450-1.8500 figure. A break above the 1.8500 figure will be
difficult to muster, due to the major resistance marked by the previous
2005 low. Indicators signal maturing trend with ADX (DMI) at 54.74. The
Stochastic on the daily chart is now treading above oversold at 25.75,
giving the sterling longs plenty of room to maneuver. The dealer (4HR)
chart stochastic is neutral at 61.8. RSI is treading above oversold at
37.57 on the daily chart and is neutral at 58.61 on the 4-hour chart. MACD
is making a bullish crossover below the zero line on the daily chart and
is sloping upward toward the zero line on the dealer (4HR) chart. In case
the cable longs fail to make a further advance, dollar traders should
expect the cable to tumble below the 1.8000 figure.

Key levels

Level
Resistance
Details

1.8345
Major
May 19 daily high

1.8290
Intermediate
23.6 Fib of the Apr-May dollar rally
1.8212
Minor
20-day SMA

Level
Support
Details

1.8076
Minor
5-day SMA

1.8035
Intermediate
June 5 daily low

1.79.25
Major
2005 Low

Daily FX :: Return of the Euro

Return of the Euro

Written by Boris Schlossberg Senior Currency Strategist
Monday, 06 June 2005 GMT
Well it sure must have been fun for the dollar bulls. The unit gained an
astounding 13 cents against the euro in merely 2 months and reversed the
whole euro rally of late 2004. At that time Newsweek came out with its
infamous “The Incredible Shrinking Dollar” cover story proving once again
that there are no worse traders than the popular press. Of course now that
the tide has turned we are waiting for the Time magazine article to
solemnly proclaim “The End of the Euro!” which will no doubt mark the top
of the dollar rally

Meanwhile, the euro seems to need no help from mass media as the unit is
recovering smartly in European session tonight buoyed by a recovery in
Retail PMI figures which have moved back up above the 50 expansionary
level to 50.2. In fact Germany’s retail sales jumped to the highest
reading in 5 months while French numbers increased for the 1st time in 4
months.

Talk, both in Europe and US is turning to interest rate policy with
European officials suggesting that ECB lower it ‘s benchmark rate while
some analysts project that US may soon cease hiking the Fed funds rate
further. German Deputy Finance Minister Pfaffenbach was the latest
European politician to press the ECB for a rate cut in a Bloomberg TV
interview tonight. We doubt that ECB will be swayed by the rhetoric, given
that the euro has already declined by 1300 points and may have already
done the stimulative work for the bank. However, even if it does lower
rates the ECB rate cut is unlikely to be more than 25bp. The ECB is far
more concerned with price stability rather than spurring growth and is
loathe to enact inflationary policies. In US meanwhile traders will follow
Alan Greenspan’s testimony to Congress on Thursday to ascertain if last
Friday’s soft NFP figures may have tempered his enthusiasm for additional
rate hikes. If US is indeed in the final phase of its tightening cycle
then the carry trade advantage enjoyed by the greenback may soon lose its
luster, and the market will begin refocusing on US’s deteriorating Balance
Sheet position.

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Daily FX :: “Dollar Bull Is About To Lose Its Horns”

EUR/USD – Euro bulls are finally getting a chance to exalt their revenge
upon the greenback bulls as the dollar long lost momentum when the pair
approached the 1.2150 level. As the euro bulls finally getting their
chance to take back some of the territory lost to the dollar, their
advance will most likely will be capped by the 1.2700-30 range a strong
resistance which marked the previous 2005 low. Also traders should expect
quiet a few exotic option strike barriers to be placed around the 1.2500
figure, making it a perfect target for the institutional traders to aim
for. Indicators signal a maturing trend with ADX (DMI) on the daily chart
is at 38.55. Stochastic remains extremely oversold on the daily chart at
9.05, which is indicative of a strong trend. The Stochastic on the dealer
(4HR) chart is neutral at 38.36. RSI is extremely oversold on the daily
chart at 19.17 with the 4-hour chart RSI neutral at 44.33. MACD remains
deep below the zero line on both the daily chart and is slopping upward
toward the zero line on the dealer 4(HR) chart. In case the reversal fails
greenback longs will most likely resume their advance and push the pair
toward the psychologically important 1.2000 figure.
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