Reply #2: Dollar Watch

[54anickel]

http://quotes.ino.com/chart/?s=NYBOT_DXY0&v=s
Last trade 89.53 Change +0.58 (+0.65%)

Settle 88.95 Settle Time 23:35
Open 88.92 Previous Close 88.95
High 89.62 Low 88.85


US Dollar Collapse a Real Possibility
http://www.fxstreet.com/nou/content/102670/content.asp?menu=macro&dia=1342004

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The Iraq and terrorist issues remain on the front page. It must be said that developments on the ground in Iraq over the last two weeks or more do not encourage a bullish US psychology in the rest of the world. Such developments do effect market dynamics if they continue to build. It could be said the psychological ground toward the US dollar has been softened by these developments. Should there be, and most hopefully not, a significant terrorist event in the US in coming weeks, coming as it would on the back of a perceived to be failing Iraq policy, a change of administration in the US would become highly probable.

The Bush administration would be left with a still free terrorist leadership, a struggle to maintain civil order in Iraq, and a still vulnerable US homeland. In such circumstances the current policies would come to be seen as blatantly inappropriate and ineffective.

This is a dark picture being painted here, and not one we favour. Yet it is the role of a strategist to look for the soft side of a market, and how that soft side may be fundamentally punctured. We simply cannot see how the Bush administration could survive such a backdrop, regardless of how well the economy was doing.

We have long offered the view that the Bush administration is vulnerable at the forthcoming election, and most importantly that this is not something the market is pricing. There is no administration change “risk” currently priced into the US dollar, let alone actual change of administration. This probably has nothing to do with the large and record contributions made by some Wall Street investment banks to the Bush campaign?

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Key factors today:
http://www.fxstreet.com/nou/content/102055/content.asp?menu=market&dia=1342004

The US retail sales report will be important, although markets will also continue to monitor developments in Iraq.

Market analysis

Euro/dollar:

There is the potential for a further dollar advance over the next week with optimism over the economy and a lack of enthusiasm for the Euro helping to offset the persistent political concerns surrounding Iraq. The dollar will still find it difficult to advance strongly and there will be initial resistance around 1.1980, but the 1.1850 level remains a realistic medium-term target.

The dollar has retained a firm tone against the Euro and, after being blocked at the 1.2050 level on Monday, the dollar strengthened further to a high of 1.1985 in early Europe on Tuesday before retreating slightly to 1.20.

The Euro has been undermined by selling against the yen and there is a general lack of confidence in the Euro. If sentiment fails to revive soon, there will be an increased risk that longer-term Euro sentiment will be damaged with a further closing of long Euro positions.

The US economic data will remain important and markets are expecting a retail sales increase of 0.6% today. The dollar should be able to survive a slightly disappointing set of figures, but monthly growth below 0.2% would damage the potential for a further near-term advance. Monthly growth above 1.0% would be dollar positive and reinforce expectations of a Fed tightening, especially after the comments from the Fed's Parry on Monday who warned that rates would eventually need to rise.

Tokyo Stocks End Higher, Dollar Lower
http://www.columbiabasinherald.com/articles/2004/04/12/ap/Headlines/d81trb300.txt

TOKYO - Tokyo stocks rose to a new 32-month high Tuesday as investors bought shares in banks, retailers and other sectors poised to benefit from an economic upturn. The U.S. dollar was down against the Japanese yen.

The Nikkei Stock Average of 225 issues closed up 85.12 points, or 0.71 percent, at 12,127.82. It was the third time in two weeks that the blue-chip index has finished at a 32-month high, edging closer to a mark of 12,163.67 reached on Aug. 8, 2001. On Monday, the Nikkei rose 145.19 points, or 1.22 percent.

The dollar was trading at 105.65 yen at 5 p.m. (0800 GMT) Tuesday, down 0.61 yen from Monday in Tokyo but above the 105.36 yen it bought in New York later that day. The U.S. currency fluctuated between 105.06 yen and 105.73 yen during Tokyo trading hours.

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In Beijing, Cheney to Meet With Chinese Leaders
Tensions Over Taiwan, N. Korea to Dominate Discussion
http://www.washingtonpost.com/wp-dyn/articles/A7331-2004Apr13.html

With tensions rising across the Taiwan strait, Vice President Cheney arrived here Tuesday for meetings with top Chinese officials, including President Hu Jintao, on a range of economic and security issues, including Chinese complaints about the narrow reelection of Taiwanese President Chen Shui-bian and his campaign to write a new constitution for the island.

Cheney plans to tell the Chinese, who believe Taiwan is a renegade province, that the administration still adheres to the cornerstone of U.S.-Chinese relations -- an ambiguous phrase that Chinese on both sides of the straits believe there is "one China." He also will reiterate that the administration opposes unilateral efforts by either side to change the status quo in the region, a senior administration official said.

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The crisis over North Korea's nuclear ambitions is also high on the agenda. China has pressed the Bush administration to show greater flexibility in the negotiations with the Pyongyang government. But U.S. officials said Cheney was delivering a message that the United States would offer no concessions as it seeks a sweeping dismantling of North Korea's nuclear programs, backed by a tough program of inspections.

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Malaysia under pressure to review currency peg
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1079420306670

Singapore's decision to strengthen its currency has renewed market speculation about the future of neighbouring Malaysia's fixed exchange rate.

The currency peg, imposed in 1998, has so far been seen as successful, boosting exports for the trade-dependent economy and creating stability in the wake of the 1997-98 Asian financial crisis.

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Rafidah Aziz, the international trade and industry minister, suggested this week that exporters were relying too much on the peg instead of undertaking industrial restructuring to maintain competitiveness.

"Manufacturers and producers need to be more competitive rather than depending on the currency (peg)," she said.

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