EURO/USD – Strong Recovery Expected
by Max McKegg
http://www.forexnews.com/FI/default.asp?f=20040521.mgn
Euro has sold-off sufficiently and is now ready for a strong recovery. With support at 1.1940/1.1900, looking for imminent advance onto the 1.2200 level, enroute to 1.2450 (refer Daily Chart below).
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US dollar weakness expected to continue
Monday, May 24, 2004 6:47:42 AM ET
J.P. Morgan Securities
LONDON, May 24 (New Ratings) – Analysts at JP Morgan Securities expect the US dollar to remain weak in the medium term.
In a research note dated May 21 and published this morning, the analysts mention that the recent uptrend in the US dollar is not sustainable in view of the currency's long positions versus the euro. Expectations of increased production by the OPEC have resulted in the strong support for the Japanese yen and commodity currencies, the analysts add. Moreover, the ability of the US to attract long-term flows continues to be limited, according to JP Morgan Securities. The latest US treasury portfolio flow report reveals record selling of US equities by foreign investors, against a record trade deficit, the analysts add.
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Monday, May 24, 2004 10:40 GMT
Daily Report
By Commerzbank AG
http://www.commerzbank.com
US rate expectations and the USD
US interest rate expectations, allied to position liquidation, have clearly driven the USD over the last 3 months as a steady stream of better-than-expected economic numbers have been released. From here, however, it is difficult to see how rate hike expectations can be ratcheted sustainably higher without a significant deterioration in the inflation outlook or another stunning payroll report. With the improvement in business and consumer surveys apparently stalling, we believe the dollar is set to reverse its recent rally.
Shifting rate expectations and the USD
The current structure of implied US short-term interest rates is shown opposite. A couple of weeks ago, the 3m eurodollar futures strip reflected rates of 4.20% by the end of next year, which - with 13 FOMC meetings between now and then - left little room for the Fed to even catch its breath. As we noted at the time, "It is hard to imagine the market moving sustainably to a level which would require not only a rate hike at every single meting, but at least one of those hikes being more than 25bp. Even in the 1994 tightening cycle (which included 3 hikes of 50bp and one of 75bp) there were 3 meetings at which rates were left unchanged". The dollar has rebounded over the last 3 months as interest rate expectations have been ratcheted up significantly. Back on February 18th, with EUR/USD at 1.29, the futures strip reflected 3m rates of 1.78% in Dec ’04 and 3.26% by Dec ’05. The futures rates subsequently increased by 71bp and 96bp respectively, with these expectations of higher rates in turn pushing EUR/USD down to 1.18. Since the low point of 95.68 on May 14th, the Dec ’05 contract has already rallied 28 ticks to 95.96, helping to lift EUR/USD from its recent low of 1.1780 to a high on Friday of 1.2069; its best level on over two weeks.
This week’s data calendar a dollar negative
It is hard to see this week’s US economic data calendar causing interest rate expectations to be ratcheted higher. There is absolutely nothing scheduled for release today, whilst tomorrow brings consumer confidence. April had seen a 4.4 point jump in the index to 92.9 but with no increase in the preliminary University of Michigan Survey and disappointments from the Empire and Philly numbers, it is hard to see a big increase in confidence, especially against a backdrop of sharply higher gasoline prices. On Wednesday we have the notoriously volatile durable goods orders which are due a big pullback after a 5.0% surge the previous month. Indeed, over the last 3 years, a reading above +4.0% has never been followed by a positive number. The detail of the GDP revisions on Thursday are unlikely to trouble investors, whilst jobless claims would have to fall a massive 27k on the week to make a fresh low for the cycle. The week finishes with the Chicago Purchasing Managers’ Survey, where expectations currently centre on a drop
from 63.9 to 62.5. Payrolls of course loom on June 4th but for this week, at least, we expect rate expectations overall to be a negative for the USD.
FX Implications:
EUR/USD1.2060 is proving a tough level to crack on the upside, but the uptrend at 1.1820 looks well protected. We favour a move higher.
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Hier eine Minderheitenmeinung:
Dreieck in Welle-B-Position, zusammengesetzt aus 5 jeweils 3-welligen Wellen,
kein Überschreiten mehr des Zwischenhochs vom 21.05 bei ca. 1,2071, später Kursziel bei etwas über 1,08.
Fand sogar einen Profi, der darüber heute schrieb:
· Symmetrical Triangle in Euro
On Friday, the EURUSD gave bulls a false sense of excitement as it attempted to break 1.2060, the topside of its recent range during early US trading. However bears quickly regained control as the pair failed to maintain gains for a test of more meaningful resistance at 1.2180, falling right back towards the bottom of its 1.1940-1.2060 range. Short-term volatility has contracted significantly over the past 3 trading sessions, with a symmetrical triangle formation on the daily, signaling an imminent expansion in range as volatility reverts back to more normal levels. A break below 1.1930, the trend line support / May 18 & May 21 low / 10-day SMA / and 38.2% fibo from 1.2182-1.1770
would allow for a test of the May 17 low at 1.1875, followed by crucial support at 1.1760, the lower Bollinger / April-26 low / 2-yr bull channel support. Should bulls manage to push the pair back above Friday's high at 1.2075, it would expose 1.2135/45, the May 7 spike high and upper Bollinger. Bulls would still need to
rally the pair above the May 5th high at 1.2180 to negate the overall bearish momentum.