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AFX


LONDON (AFX) - The dollar was steady at slightly lower levels against other major currencies in a quiet day for economic data and ahead of US Fed chairman Alan Greenspan's testimony to the Joint Economic Committee of Congress Thursday.

Greenspan's views on the US economy will be central for interest rate expectations and may well have strong implications for the dollar.

Some analysts think Greenspan will be more hawkish than other Fed officials recently and will point to the sharp increase in unit labour costs but yet others think he will signal that the hiking cycle will end soon.

The Fed has raised its key Fed funds rate from 1 pct to 3 pct over the last year and as things stand, is still widely expected to continue raising the cost of borrowing in a measured manner over the coming months.

When the US benchmark US Fed funds rate hits 3.25 pct or 3.50 pct, the Fed may not be able to stick to its current policy of hiking rates in a measured manner, said Divyang Shah at IDEAglobal.com.

The Fed may 'choose to make further moves data dependent,' he added.

The dollar will also face another test Friday when US trade numbers for April are released. Any deterioration will weigh on the dollar especially if Greenspan also hints at a pause in US rate hikes.

That aside, continued speculation about when and how far China will go to revalue the yuan kept the dollar from rising too far.

In a speech in Beijing yesterday, Greenspan said China would benefit from introducing a freer exchange rate system and that a change is likely to happen soon. At the same time however, the Fed chief warned that a Chinese revaluation would not necessarily help address the burgeoning US current account deficit.

In any case China showed no signs of budging.

'We will push forward the reforms step by step. Past experience has told us that gradual reform is successful,' Chinese central bank chief Zhou Xiaochuan said pointedly.

Zhou also said that mounting political pressure on China to move to a more flexible exchange rate will not 'create a helpful environment for China to carry out its reforms'.

Talk about a revaluation is expected to continue especially in the run-up to the G8 meeting in Scotland in July and the G7 finance ministers meeting in London this weekend.

While such speculation may be misplaced, the impact that it is having on the market cannot be dismissed, said Mark Austin at HSBC.

The yen is potentially the biggest gainer from the yuan speculation and may even fall to 106.00 from 106.50 against the dollar, he added

The euro meanwhile, managed to stay close to the 1.23 usd mark despite continued speculation that the European Central Bank may have to bow to political pressure to reduce borrowing costs in the area.

'Political uncertainty over the future of the euro along with calls from politicians calling for a rate cut in the euro zone continue to weigh heavily on the euro. We suspect that this will continue over the medium term and hence any bounce in the euro will be limited,' said Naeem Wahid at HBoS.

For now at least, it looks like the ECB will not capitulate but the climate of uncertainty after France and the Netherlands rejected the draft EU Constitution has led some sections of the market to bet that the central bank will have to budge.

Yesterday, ECB chief Jean-Claude Trichet said inflation expectations in the euro zone were low and that the central bank would do all it could to reinforce consumer and business confidence, fuelling speculation that a rate cut may be on the cards afterall.

Trichet was reported saying that his comments were not meant to prepare markets for a rate cut.

Elsewhere, the pound was higher against the dollar despite a fresh raft of weak UK data showing that the consumer side of the economy is fast losing pace.

The British Retail Consortium reported that cooler than usual weather conditions, consumer caution and the slowing housing market hit the UK high street hard during May, with retail sales slumping for the second month running.

The BRC said like-for-like sales, which excludes new stores and added floor space, in May fell by 2.4 pct from the same period a year ago. This comes after a 4.7 pct decline in April.

Although the BRC said retailers were facing a consumer-led recession, the Bank of England is not likely to heed the lobby group's advice and cut interest rates this Thursday.

Separately, the monthly survey from the Halifax, the UK's largest mortgage lender and part of the HBOS PLC banking group, painted a pretty bleak backdrop for retailers.

Halifax reported that UK house prices were down 0.6 pct in May from April.

That pushed the quarterly year-on-year rate down to 5.7 pct, its lowest rate since May 2001 and way below the July 2004 peak of 22.1 pct.



London 1231 GMT Singapore 0844 GMT



US dollar

yen 106.75 up from 106.61

sfr 1.2465 up from 1.2440

Euro

usd 1.2282 dpwn from 1.2308

stg 0.6718 down from 0.6720

yen 131.12 down from 131.19

sfr 1.5305 down from 1.5308

Sterling

usd 1.8288 down from 1.8310

yen 195.19 down from 195.29

sfr 2.2790 up from 2.2779

Australian dollar

usd 0.7688 up from 0.7668

stg 0.4201 up from 0.4195

yen 82.07 up from 81.96



ss/ra

hilary, chocolat,

Ladies, I do hope you won't object to this crude male intervention but...

Thank you for taking the time and effort to provide these detailed and informative posts...:-)

Regards

SC

SC: Seconded. MM (but please don't mention my male intervention . . . ;-)

MM,
Your secret is safe with me..:-)

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That's brill, Hils!

What are you two charmers up to then...

3

No Good...:-)

Just a test to see if it works.

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Forex - Dollar lifted by hedge funds purchases - UPDATE 4
AFX


NEW YORK (AFX) -- The dollar was higher against other major currencies late Wednesday, benefiting from hedge fund sales of the euro for the U.S. currency.

In recent trades the euro was down 0.04% at $1.2238 and the dollar up 0.6% at 107.24 yen.

The dollar, which was lower against the euro during morning trade, later reversed course to trade higher, lifted largely by hedge fund plays, according to Brian Dolan, head of currency research at Gain Capital.

'There's no real news prompting this,' Dolan said. 'It's just a market dynamic. The euro tested the $1.2340 to $1.2350 level, and then triggered some stop losses.'

In morning trade the dollar was weakened against the euro by recent remarks by Federal Reserve officials viewed by some as hints that the Fed could be nearing the end of its rate tightening cycle, according to Kathy Lien, chief fundamental analyst at Forex Capital Markets.

An end to the rate hikes would undermine the dollar.

Fed chief Alan Greenspan failed to address the matter directly earlier in the week in a satellite appearance at a Beijing monetary conference.

But his assertion that recent Treasury yields weakness could 'credibly' be linked to economic weakness helped build the case for a softer rates policy.

Greenspan will testify Thursday to a joint Congressional committee and those remarks will be carefully monitored for more clues about the rates outlook, Lien said.

The market is also waiting for the Bank of England's decision on interest rates Thursday. The U.K. central bank is widely expected to hold rates at 4.75%, with expectations growing of a rate cut in the second half.

The pound lost early gains to trade down 0.07% at $1.8273..

Sales at U.S. wholesalers bounced back in April after tepid sales in the previous three months, the Commerce Department reported. Sales rose 1.5% in April, the biggest gain in 13 months.

Meanwhile, inventories increased 0.8%. The inventory-to-sales ratio fell to 1.18 from 1.19. Economists were expecting inventories to rise about 0.5% in April

Japanese data

In Asia, a key gauge of the current state of Japan's economy fell below the boom-or-bust line of 50.0 in April, the government said Wednesday.

Japan's Cabinet Office said in a preliminary report that its index of leading indicators, predicting economic developments about six months ahead, came in at 25.0 in April. The index of coincident economic indicators, measuring current conditions, stood at 44.4.

An index reading above 50.0 is considered a sign of economic expansion, while a figure below that line indicates contraction.

'This suggests that the near-term outlook remains weak, although it appears to be more a case of a loss of momentum rather than an outright decline,' economist Peter Morgan at HSBC Securities told clients.

The index of lagging indicators, measuring economic performance in the recent past, was at 75.0.

Bank of Japan data showed Wednesday that lending by Japanese banks fell 2.7% in May from a year earlier, the same pace as April's revised 2.7% fall. May's decrease extends the length of consecutive declines to 7 years and 4 months.



This story was supplied by MarketWatch. For further information see www.marketwatch.com.

Hil:

No it didn't (work, that is). Not sure why, haven't really investigated.

D

These are the proper links, MM.

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MM,

It looks like they changed the hyphen linking the date within the URL for an underscore ....... probably to stop people like me linking.

I'll bet that they alternate from one day to the next between hyphens and underscores.

Builders all dropping today. Presumably a possibilty that someone thinks the rate will rise?

Hil, Quite probably. Tight b*ggers.

Meanwhile, I noticed this:

Log on to http://www.cantos.com for:

Dollar to plunge on deficit fears
- Video interview with Robin Bew, Chief Economist, EIU
- Robin Bew warns that the dollar is set for further falls during the next 12-14 months over concerns about the growing US current account deficit. He adds that Chinese economic growth will slow over the next 24 months, whilst in Europe, Germany faces further woes and the Italian outlook is "particularly bleak".

I bet Robin Bew's fun at a party.

SC: Time to remind ourselves of John Maynard Keynes famous last words?

"I wish I had drunk more Champagne."

Another test.

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- EURUSD - Ratio Flips to Net Longs, Signaling More Losses To Come In the EURUSD - GBPUSD - Ratio Remains Unchanged With Both Longs and Shorts Increasing Positions - USDCHF - Ratio Flips to Net Shorts, Confirming EURUSD Sell-off Signal - USDJPY - Open Interest Unchanged But Net Positioning Becomes Increasingly Short Historical Charts Of Speculative Positioning The ratio of longs to shorts in the EURUSD is 1.24, which is within the extreme +/-3 range.  The ratio has flipped back to net longs after moving to net shorts last week.  The change in positioning was a result of a 12.9% slide in open interest.  Shorts reduced holdings by 40% while longs increased their positions by 36%.  Taken as a contrarian indicator, the flip in the EURUSD ratio suggests that the currency pair could extend its move lower. The ratio of longs to shorts in the GBPUSD is 1.36, which is within our extreme +/- 3 range.  The ratio itself remains unchanged with only a 3.4% increase in overall positioning.  Both longs and shorts increased their holdings modestly (3.5% and 3.4% respectively).  Prices ended the week not far from last week’s levels.  Although economic data over the past week has mostly surprised to the downside, the Bank of England is keeping the market guessing with their neutral stance.  We will continue to wait for a flip in the ratio to net shorts before calling a bottom in the GBPUSD. The ratio of longs to shorts in the USDCHF is –1.25, which is within the extreme +/- 3 range.  The ratio has flipped from net longs to net shorts, suggesting that we could see a move higher in USDCHF.  In fact, we are beginning to see that already this morning after the 5am data as the dollar rallies on the back of Greenspan’s comments.  Open interest fell 3.6% with long positions cut by 16% and short positioning rising by 9%.  The fact that both the USDCHF ratio and the EURUSD ratio flipped could be a strong signal for a contra-move in both currency pairs.   The ratio of longs to shorts in the USDJPY is –2.11, which is within the extreme +/- 3 level.  Overall positioning was pretty much unchanged over the past week even though the market became increasingly short.  Long positions were cut by 7.8% while short positions increased by 5% as USDJPY retraces over the past week.  We are basically looking for 2 things in USDJPY at this point, which is either an extreme level in positioning less than –3 or a flip in the ratio before the data can give us any more telling information.  For the time being, as a contrarian indicator, the SSI suggests that USDJPY prices should have a bias to the upside.

Hil:

Excellent, thank you.

D.