Articles from December 2004

Fri 31st Dec: Another all time low for the greenback as it slides into New Year

The Dollar remained mired around the 1.36 levels against the single currency as the Chicago PMI released came much weaker than expected at 61.2.

This weakness in the headline number for the index coupled with a weak employment component was enough to send the dollar to a new all time low of $1.3666.

Thus with most trading houses employing skeleton staff and the market targeting technical levels it seems inevitable that the greenback would end the last trading session of the year on a weaker note.

Though the market continues to expect the dollar fall in the coming year and despite dollar’s 10 percent recent fall against the euro and 7 percent fall versus the yen a mild correction can be expected in the first quarter of 2005.

Wishing you a happy, healthy and prosperous New Year!

Thu 30th Dec: Dollar set to end the year on a weak note, majors largely range bound

The US Dollar slipped to yet another all time lows aganist the single currency yesterday to hit $1.3645 before regaining some of the lost ground in a technical rebound just ahead of the thinnly traded year end market.

The gains that the dollar had made on the news of stronger than expected US conference board data yesterday could not be held as the traders focussing sqaurely on the long term fundamentals of the US- namely the twin deficits- yet again sold the greenback.

Sterling slid further to mid $1.91 levels as weaker than expected UK housing approvals data showed that the economy was possibly trying to cope with the rising borrowing costs.

Year end markets ensured that not much action took place either in Yen or the Aussie which remained largely range bound.

Data release for the day include Chicago Purchasing Managers index expected to come softer-though still around acceptable levels.

Wed 29th Dec: Confidence index on multi months high aids dollar’s recovery from all time lows

The Dollar pared some of its record losses aganist the single currency as the US conference board’s confidence data (102.30 in December- the highest in 5 months) encouraged profit booking in an already thin holiday conditions.

So far in this calender year the dollar has fallen about eight percent against Euro and traders across the globe feel that looking at the persistent and growing twin deficits of US, a further slide in dollar is almost inevitable.

The markets earlier expected the European central bank to intervene if the euro rose above the 1.35 levels but now the upward limit has been shifted towards the 1.38 level.

Although Japanese authorities have raised their concern time and again over the rise in their domestic currency, it seems clear that other than verbal jawboning no action in the currency markets can be expected.

However, 102 would continue to be a psychological barrier for the time being.

Sterling failed to breach the 1.94 levels and following its neighbour’s fall easily slide to mid 1.92 levels.

Tue 28th Dec: Traders continue to lay faith on Euro

We offer our deepest sympathies to all of the people effected by the Indian Ocean Tsunamis and wish them all of the very best luck in their forthcoming difficult times as they battle to recover from this disaster.

In a slow and steady start to the last week of 2004 the dollar seems to be trading in a range in thinly traded markets.

Breaking through the $1.93 handle, traders bid the cable up on low volume and further dollar bearishness.

Strong demand pushed the euro even higher, trading at $1.3540 in New York before the Christmas weekend traders bid the currency higher, as it hit record highs of $1.3640 in the US session.

The advance looks to be a result of increasing speculation that the ECB is not keen on intervention.

Continued appreciation looks to be imminent as investors increasingly scrutinise European economic data for any signs of inflationary pressures and optimistic production to lend justification to the price level.

The yen too traded near its strongest in three weeks against the dollar in Asia after reports showed Japan’s industrial production rose and the jobless rate declined.

Fri 24th Dec: Dollar on the brink of hitting record lows as mixed data and thin markets encourage dollar bears

Dollar tumbles to near record lows against the single currency as a barrage of mixed data releases hit a thin market.

A 12 percent fall in the house sales coupled with a 17k rise in the weekly jobless claims to 333k led to yet another session of sell off in the dollar which touched a high of $1.3505.

The market ignored a better than expected durable sales numbers at 1.6 percent in November and a rise in University of Michigan figures which rose to 97.1 from an expected 95.7.

Further hurting the dollar was the core Personal consumption expenditure figures- a favourite inflationary figure of the Fed- which came at a benign 1.5 percent well within Fed’s target of 2 percent.

This led the market to believe that the central bank would not be too aggressive in raising rates in the coming year.

Sterling got pounded late in the session yesterday as UK’s current account deficit figures came out much higher than expected at GBP 8.77 billion suggesting that a stronger pound was hurting the exports in the country.

The markets on friday should remain relatively calm as traders would stay from it and take an extended weekend to enjoy Christmas.

Wishing you a Merry Christmas and a Happy New Year!

Thu 23rd Dec: Greenback gains mildly on GDP; Sterling ‘pounded’ by BoE

The headline-grabbing currency in this holiday-mood driven market was the Pound which fell headlong as the BoE startled the markets by hinting at possible rate cuts in Q1 or Q2 rather than stability or even a possible hike in 2005 as previously thought.

The 4-cent drop this week, initiated by the slowdown in the housing activity, was compounded by the MPC meeting minutes that showed that there was a possible deceleration in consumption growth.

But coming to the growth story in US that gave a leg up to the greenback – the GDP grew at a 4% y/y in Q3 beating expectations of 3.9% (previous 3.3%), mainly as a result of drop in imports from 6% estimates to 4.6%.

The Fed Chairman’s favourite indicator of inflation, the PCE index (Personal Consumption Expenditure) grew by a benign 0.9% but with some clues of prices going up.

Oil prices fell more than a $1.50 a barrel following a report of an unexpected rise in U.S. stockpiles, previously projected to have fallen.

With the Japanese markets closed today celebrating the Emperor’s birthday, the dollar was very range bound in the early morning Sydney trade with trading quite subdued.

Despite a clutch of data from a shortened US trading session today, there will not be much participation amongst market players who are biding their time instead untill the New Year.

Wed 22nd Dec: Santa’s pre-X’mas gift to investors

Ahead of Christmas holidays the U.S. stocks rallying on Tuesday, as the Dow closed at its highest level in 3 1/2 years (assisted by rebounds in major pharma and tech stocks) in a typical seasonal buying frenzy.

But even before the US session commenced, Sterling’s performance lost some sheen on news of a sharp fall in UK house prices as the RICS housing price index fell down to -48% (October: -40%) for the 7th straight month in November causing some skepticism about future rate hikes that may negatively effect a deeply indebted property market.

The Euro traded in a narrow range, not losing much to the dollar, as the Euro zone current account surplus rose to EUR 5.5 billion in October beating expectations of a 4.3 billion reading. The expansion came despite a 7% yearly rise in imports and a 3% growth in exports.

The Japanese currency gave up some gains as the closely-watched tertiary index, which measures spending in the service sector, fell 0.1% in October, a further evidence of decelerating growth momentum in Japan. The all-industries index, measuring overall economic activity, dropped 0.4% from the previous month. The economy contracted by 0.1% in Q2 (estimates of 0.3%) with a downward revision of the GDP growth for 2005.

Traders may be just looking to take some profits in majors in pre-holiday thinned trades ahead of few remnant data from the US.

Tue 21st Dec: Dollar resumes in its downward path

The dollar found itself heading lower even as trading remained thin in the run up to the festive season.

A 0.2% increase in the leading economic indicators and oil prices dipping by more than a dollar to end at $45.64 per barrel failed to prop up the US currency.

Markets, which had turned net sellers in the Euro, are only headed higher as traders resume buying the single currency. The euro headed towards the 1.34 mark on renewed buying as markets held their breath moving towards the year-end and trying to preserve whatever gains they can.

Sterling continued oozing bullish sentiments testing the 1.95 levels, as traders increased net long positions in the futures market, fueled by the strong economic releases last week.

Despite a down gradation of the Japanese economy, Yen took its cue from the other majors to move higher above the 104 mark. With focus now on the All-industry/Tertiary survey for a cue on further movements in the Japanese currency.

With a sharp reversal in net positions in the futures, the major crosses are likely to resume their rally gaining against the dollar.

Mon 20th Dec: Dollar ends the week a tad lower

The US Dollar survived a barrage of economic data to end the choppy week marginally lower.

With consumer inflation data springing little surprises (quoting just above 2%), the drop in the dollar was seen more on account of a surprising increase in the German Business Sentiment, nearing its all time high. This was despite the eurozone facing threats from rising oil price and pressure of an appreciating currency.

With the Yen continuing to trade in a range of 103.50-104.50, the best performing major currency was Sterling, which hit the markets with an all-time high of 1.9540. With traders concentrating on the yield curve gaps between two nations, the Pound gathered maximum advantage from positive updates on consumer and producer price inflation, retail sales and the labour market.

All of these, in turn, helped support the suggestion that the Bank of England may have one more rate rise up its sleeve.

We feel traders would be wary of taking any fresh positions before the new – year, forcing the crosses to trade in the range seen off late.

The US crude futures continued to rise as speculators covered their shorts ahead of the cold weather in the Northeast of the US.

Wall Street crept higher this week as muted gains in the key indices masked a series of merger and acquisition activity and left the stock market hovering close to yearly and multi-year highs. By the closing bell, the Dow Jones was down 0.5 % on Friday at 10,650 and the technology-heavy Nasdaq Composite was down 0.5% as well at 2135.

Fri 17th Dec: Positive numbers from the US led to a sell off in the majors

The dollar bounced back sharply yesterday as encourgaing data releases hit the market and thus triggered a round of profit booking which led to a 2 cent shed off in the single currency.

The US Q3 current account deficit came out lower than expected at $164.7 billion while the Philly Fed index- an index of manufacturing sector- came out much stronger than expected at 29.6. There was positive news even on the jobs front with the weekly jobless claims dipping sharply by 43k to 317k.

As if this was not enough President’s Bush’s comments that the current account was concern to the administration and tough choices would need to be made on the spending front also helped put the dollar in a strong position.

The euro’s fall could potentially led to further sell off in the single currency during the late afternoon after the release of Germany’s IFO data, which is again expected to stumble below expectations.

The Yen also suffered losses against the greenback as the market expects a round of intervention from the Bank of Japan ahead of today’s crucial CPI data.

A stronger than expected retail sales data from UK helped Pound curtail some of its losses as it trailed in the $1.93 levels.