Monday, June 26, 2006


A 'Pivot Point' For The US Dollar

The Associated Press has some currency numbers. "The dollar fell against most major currencies Monday, even as U.S. data showed sales of new homes rising in May. The euro bought $1.2580 in afternoon New York trading, up from $1.2515 in New York late Friday. The British pound rose to $1.8234 from $1.8188."

"In other trading, the dollar bought 1.2422 Swiss francs, down from 1.2479 late Friday, and 1.1221 Canadian dollar, down from 1.1241.'

"The dollar slipped against the Japanese currency, dipping to 116.28 yen from 116.49 yen. The dollar has been helped recently by expectations that the U.S. Federal Reserve will raise rates when it meets again on Thursday."

From Bloomberg. "'This is very much a pivot point for the dollar,' said Steven Saywell, chief currency strategist in London at Citigroup Inc., the third-biggest foreign exchange trader according to Euromoney magazine. 'A lot of short dollar positions have been unwound,' meaning traders have exited bets on dollar losses, he said. 'The rally is nearly over.'"

"'The U.S. rates advantage story is the only game in town,' said Armin Mekelburg, a currency strategist in Germany's second-largest bank. 'Markets are saying there's less risk to buy dollars. If the Fed either raises rates by 50 basis points or delivers 25 basis points but keeps its options open, the dollar will go higher.'"

"The dollar was modestly lower against major foreign-exchange counterparts Monday, weighed down by news that the United Arab Emirates would shift its foreign-exchange reserves away from the U.S. currency. The central bank of U.A.E. said it would shift 10% of its reserves from dollars to euros. The country's reserves stood at around $23 billion at the end of 2005. It did not say when it would do it."

"'It seems unreasonable to expect the market to react every time this [reserve] talk surfaces, which it has on more than one occasion over the past few months. However, it does play on concerns that with other current account deficit countries under pressure, the US imbalance, and how it is financed, make the dollar vulnerable,' said Marc Chandler, senior currency strategist at Brown Brothers Harriman."

"In Japan, the yen remained under pressure as traders scaled back expectations the Bank of Japan would start raising interest rates soon and on concerns that its chief Toshihiko Fukui would resign after coming under scrutiny for his 1999 investment in a scandal-tainted fund. Japan's four opposition parties called on Fukui to step down on Saturday. Kaoru Yosano, Japan's economic and fiscal policy minister, said on Sunday that Fukui's 'credibility over monetary policy is unshaken.'"

"Meanwhile, a report in the Financial Times quoting the Belgian European Central Bank member, Guy Quaden, saying there are 'no taboos' was considered hawkish, though Quaden said the ECB was monitoring rates 'very closely' and not with vigilance."

"Gold futures closed slightly lower Monday, finding little support in a weaker dollar as investors kept to the sidelines ahead of a widely expected interest-rate increase at the Federal Open Market Committee meeting this week. Gold for August delivery closed down 30 cents at $587.70 an ounce on the New York Mercantile Exchange."

"'Gold is starting the final week of June on a mostly neutral note, drifting slightly higher but not making any true attempts at piercing the $600 mark that lies just above,' said Jon Nadler, analyst at 'For the moment, traders appear satisfied to await the FOMC meeting and the results thereof.'"

"Other metals prices finished mixed. Platinum added $14.40 at $1,181.30 an ounce and palladium rose $10.75 at $320.55 an ounce. Silver finished down 4.5 cents at $10.24 an ounce and copper added 8.4 cents at $3.324 a pound."

Mixed signals on the USD? A pregnant pause? It's just the calm before the storm. A dead cat bounce may last through the summer, but that would be a long time in currency trade. Don't bet on the USD.
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