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Old Aug 14th 2004, 6:20 pm   #1
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Default $ AUD v € EURO

I understand impossible to determine long term, but any trader or financial expert poster know what might happen between $AUD and €EURO in the next weeks ?

I'm registered with both HiFx and CBA but they won't commit to what might happen. We want to move about €250.000 and at present rate is about €1.00 to $1.72 - any financial news or forecasts due from anywhere in the next few weeks that might change this ?

Even the move of 3c in either direction makes a huge difference.

Thanks
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Old Aug 14th 2004, 6:23 pm   #2
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Arrow Re: $ AUD v € EURO

Euro - Where are We Headed Next?

Kathy Lien, Chief Strategist

Published: August 5, 2004

Once again, it is time to publish yet another article in our "Euro - Where Can It Go?" series. With the euro hovering around the 1.20 level, traders have been pondering whether the single currency will extend its slide against the dollar down to 1.15 or establish a bottom for a retracement back above 1.25. Without doubt, the euro's price action over the past few weeks has been dictated by the developments in the United States and not Europe. To start, we need to explain some of the reasons for the recent strength in the dollar:

1) Federal Reserve begins to tighten: After keeping interest rates on hold for 12 months at 1.00%, the Fed finally began to raise rates on June 30th. With interest rates at 45-year lows, the greenback became one of the most popular currencies to sell for carry trades, especially given that the Fed has been reducing rates since January 2001. Although the market has been anticipating a rate hike for some time now, the actual decision of raising rates on June 30th, has given carry traders a new reason to reverse their short dollar trades. Based upon the Fed fund future contracts as of August 4th, the market anticipates another 75bp rate hike by year end. What is important to remember is that the Federal Reserve is at the beginning of their tightening cycle, while many countries such as the Bank of England and Reserve Banks of New Zealand and Australia may be coming to the end of their tightening cycle. As the Fed continues to tighten, this would prompt more traders to reverse or take profit on their long-term short dollar trades in anticipation of narrowing of global interest rate differentials.

2) Euro longs stopped out: The most recent slide in the euro began on July 19th. Coincidently, according to the CFTC, non-commercial net long positioning in the euro reached its highest level in over a year in the week ending July 13th and July 20th. The net long positioning reached a high of 36,101. In the week that followed, which corresponded with the sharp slide in the euro, net long positioning decreased by 50%. The decrease came purely as a result of a fall in euro longs and respective decline in open interest, which only says one thing - that the longs were stopped out.

Now that we understand why the euro has been tumbling so extensively over the past month, we can evaluate the factors that could cause a further slide in the euro down to 1.15 or a reversal back to 1.25.


What Can Drive The Euro To 1.15?

Positive US Data - In the weeks ahead, we are expecting US non-farm payrolls, another FOMC rate decision, retail sales, inflation data and the trade balance. Over the past week, US data has primarily disappointed, with a weaker than expected advance Q2 GDP report, disappointing personal spending / consumption, and a softer PCE deflator. As a result, the market is starting to price in slower growth. Should the US data slated for release in the weeks ahead surprise significantly on the upside, bringing back the chatter of a strong third quarter, the dollar could find some new legs that could take the pair down to 1.15.

Technically Driven Slide - On July 23rd, the euro broke below a key trend line support level / multiple moving averages and the 38.2% Fibonacci retracement of the February to April bear wave. A break below 1.1970/50, which is the June 14 low and Fibonacci support could trigger a more meaningful move lower towards the May 1.1760 lows. That level is currently providing strong support, we would need to see a monthly and full daily closes below that level to confirm an extension of the recent downtrend. For the time being, multiple moving average crossovers and ADX > 20 should cap gains in the euro.

Adjustments in Positioning - In line with the technically driven slide, adjustments in positioning could trigger further losses in the euro. With so many currency funds reporting losses this year, Tony Norfield, global head of FX research at ABN Amro in London says that we "have a situation where many of these funds are going to jump on what they perceive as a new trend, especially if it's counter-intuitive - which, until now, a rise in the dollar has been." He also added that "At the moment, US interest rates are low so it's cheap to sell dollars forward." As US rates rise, selling dollars forward becomes less cheap or even expensive, and we are likely to see a shift in hedging flows in favor of the dollar."

Negative European data - Although it has been some time since the euro has moved based upon European economic data, this does not mean that the currency has become completely immune to the overall health of the economy. Probably the best argument for further euro weakness is the fact that growth in the Eurozone has been very weak since Germany, France and Italy came out of recession last year. Domestic consumption has had a hard time rebounding, while unemployment remains high. Should the major countries tip back into recessions or continue to demonstrate a significant lag to the global recovery, the euro could remain under water.


What Can Drive The Euro To 1.25?

Weak US data Forces Fed to be Conservative - Over the past two weeks, a number of key US economic releases have been disappointing. Instead of growing the expected 3.7% in the second quarter, the US economy grew by only 3.0%. All indicators of consumer spending (retail sales, personal consumption & spending) have reported weak consumption in the month of June. Non-farm payrolls in the month of June came under the forecast of even the most pessimistic economist. The employment components of the Institute of Supply Managers' manufacturing and service sector surveys and the Chicago Purchasing Managers survey confirm the retrenchment in hiring. Inflation indicators such as the core PCE deflator and prices paid components of the ISM surveys point to slowing inflation. Clearly, the Fed has no reason at this point to be more aggressive. Should data continue to disappoint or the Fed insert new wording in their statement that implies their concern with the recent spending data, the dollar downtrend could resume.

Oil Prices Continue to Rally, Hurting Corporate Profits - Oil prices soared to a new record high as measured by the 21-year old light crude contract listed on the NY Mercantile Exchange. As one of the world's largest net oil importers, skyrocketing oil prices will have a particularly damaging effect on the economic recovery in the US by effectively threatening to stall growth. Fed Chairman Alan Greenspan has already warned that rising oil and gas prices could have a significant impact on the long-term development of the US economy. Companies worldwide are becoming increasingly worried about the surging price of oil, particularly large oil consumers such as airliners and commodity chemical companies. The effects of oil prices are also becoming more widespread. It is unlikely that it is just a matter of coincidence that auto sales have declined so extensively causing inventories at the General Motors and Ford to swell at the same time that oil prices have been making record highs.

The Persistent Concern With The US Twin Deficits - The US current account deficit widened to a record $144.9 billion in the first quarter of 2004. The deficit is now 5.1% of GDP, up from 4.6% in the fourth quarter. The sizeable rise is quite alarming and stems from a sharp increase in imports from companies trying to meet increasing domestic demand. The recovery in the US is expected to increase the demand for foreign goods, causing a further widening of the deficit. The presence of a current account deficit in the US is no surprise considering that the country has been running current account deficits for the past 10 years. However, in 2003, it has become a primary concern because the US current account deficit is at record levels with no signs of a reversal, while interest rates are at multi-decade lows. The US currently needs more than $1.5 billion in daily foreign inflows to prevent the USD from depreciating any further based upon trade. According to the latest Treasury International Capital flow data, there is little evidence that foreign investors are willing to fund the deficit. The deficit is still covered primarily by official demand from central banks.

Terrorist attack - Concerns about terrorism have once again returned to the forefront. These concerns stem from the heightened terror alert in the US, the threat of an attack in Europe posted on an Islamic website warning about "blood baths" if European countries fail to withdraw troops out of Iraq and the recent bombing in Athens. These new threats come ahead of the end of the three-month truce imposed by Osama bin Laden following the Madrid bombings in April. Concerns about terrorism should continue to grow as we near the November Presidential elections and the Olympics in Athens. Should another major terror attack occur, the dollar could once again come under heavy selling.

The direction of the euro will be dependent upon which forces grow in favor over the weeks ahead.







http://www.dailyfx.com/article_rr_052.html
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Old Aug 15th 2004, 3:49 pm   #3
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Default Re: $ AUD v € EURO

Thanks The Don - but ummm very technical talk, anything in basic talk ?

Should I buy now or wait the extra 4 weeks ?

Any other suggestions or recommendations ?

Thanks.
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Old Aug 15th 2004, 6:07 pm   #4
Don 
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Default Re: $ AUD v € EURO

Quote:
Originally Posted by irishmolly
Thanks The Don - but ummm very technical talk, anything in basic talk ?

Should I buy now or wait the extra 4 weeks ?

Any other suggestions or recommendations ?

Thanks.
It wasn't that difficult to understand!

The message was: it could go either way, depending on how things develop.

If you want peace of mind, forward buy (say) half of what you intend to exchange, now, if the rate is OK. Therefore you are mitigating the risk of the exchange rate moving against you at the 'cost' of not getting the benefit if the rate moves in your favour.

Edit: whoops

Last edited by The Don; Aug 15th 2004 at 6:17 pm.
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