[B]Talking Points
• Japanese Yen: Below 103.50 on general dollar weakness
• Euro: French unemployment better than forecast ECB on tap
• Pound: House prices continue to fall
• Canadian dollar: Ivey PMI on tap
• US Dollar: Pending Home sales on tap
[/B]
Dollar hit new lows in early European trade today with EURUSD reaching 153.45 after rumors of Chinese CB selling swept the market. The diversification away from the dollar has been a slow but ongoing process amongst many of the world’s central banks, but the recent weakness in the unit may have execrated the trend as central banks are losing millions on their dollar positions every day. The PBOC in fact has been losing more than $4 Billion per month as the spread between rates on its US investments and its domestic rates continues to grow more negative with each Fed rate cut.
USDCHF also weakened considerably breaking the 103.00 figure on a report of small bomb explosion at the Times Square Army recruiting office. The news instantly sent traders scurrying for the Swissie as a safe haven bid as police cordoned off the area and subways bypassed the busy Times Square station. In a testament to dollars weakness USDCHF is now within three big figures of parity – a level unimaginable to most analysts just a few months ago. The Swissie was also aided by better than expected unemployment data which printed at 2.7% versus 2.8% forecast.
Unemployment also improved in Eurozone where French data registered a much bigger than expected drop from 8.2% to 7.8%. The rate was a 24 year low for France and suggests that economy in EZ 2nd largest economy continues to perform well putting little pressure on the ECB to change its resolutely hawkish bias.
Nevertheless, the one way price action in the EURUSD is clearly a concern for European finance officials. Yesterday, Jean-Claude Junker noted that growth in the region was slowing and the exchange rates do not reflect fundamentals adding that, “In the present circumstances that we face we are concerned about excessive exchange rate moves.”
It will be interesting to see if Mr. Juncker’s comments will be echoed by today by ECB chief Jean Claude Trichet, who up to this moment has steadfastly refused to make any judgments regarding the lofty value of the currency. If Mr. Trichet acknowledges the slowdown risks in the EZ economy and further hints at the possibility of a change in policy sometime in the near future, the EURUSD could see some long overdue profit taking. On the other hand if Mr. Trichet brushes off any concerns regarding exchange rates moves (the eurp not only hit a high against the dollar, but against the pound as well) he will in a sense flash an “All Go” sign to momentum traders willing to test the 1.5500 level in the next several sessions
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[B]To discuss this article please contact Boris Schlossberg, Senior Curency Strategist: [/B][email protected]