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Benjamin · 06-12-2004, 12:57

12/06/04
US OPEN MARKET POINTS
Short Dollar Trade Getting Crowded?

Could the end of last week been any more of a nightmare for USD bulls? As the week progressed, divergence between the positive US economic data and miserable EU numbers grew larger every day. Sentiment indicators, including our own proprietary SSI index were all pointing to an intermediate term top. The geo-political conflict with Iran appeared to be headed for a diplomatic resolution and oil collapsed by $10/bbl as the Eastern seaboard of US enjoyed unseasonably mild weather. In short, Friday was perfectly set up for a turn in EUR/USD. Instead, the NFPs printed 112K against 200K Bloomberg consensus estimate and the pair headed on a one way trip to the 1.3500 level.

Tonight, after an early foray to test the 1.3400 handle, the EUR/USD remains well bid as Euro-zone eco data is unusually buoyant. The Retail PMI for the EU prints a soft 48 versus 48.3 expected but both Germany and France record gains over prior months as the extremely strong euro increased the purchasing power of EU consumers and they appear to have made good use of it. At the same time German Factory orders registered a much better that expected gain of 1.1% vs. -0.1% projected driven by surprisingly strong domestic demand in consumer and capital goods which offset the predictable decline from exports.

No doubt the short dollar trade is becoming very crowded and at some point an event will catch FX market by surprise producing a quick 300-400 point retracement in EUR/USD in a matter of days. Unfortunately, it's impossible to know if this will occur when the pair is at 1.35, 1.37 or even 1.40. For the time being the trend remains up, though chasing it at these levels could be problematic.

06-12-2004, 12:57	#1070
Benjamin TBB Family Registriert seit: Mar 2004 Beiträge: 10.373	12/06/04 US OPEN MARKET POINTS Short Dollar Trade Getting Crowded? Could the end of last week been any more of a nightmare for USD bulls? As the week progressed, divergence between the positive US economic data and miserable EU numbers grew larger every day. Sentiment indicators, including our own proprietary SSI index were all pointing to an intermediate term top. The geo-political conflict with Iran appeared to be headed for a diplomatic resolution and oil collapsed by $10/bbl as the Eastern seaboard of US enjoyed unseasonably mild weather. In short, Friday was perfectly set up for a turn in EUR/USD. Instead, the NFPs printed 112K against 200K Bloomberg consensus estimate and the pair headed on a one way trip to the 1.3500 level. Tonight, after an early foray to test the 1.3400 handle, the EUR/USD remains well bid as Euro-zone eco data is unusually buoyant. The Retail PMI for the EU prints a soft 48 versus 48.3 expected but both Germany and France record gains over prior months as the extremely strong euro increased the purchasing power of EU consumers and they appear to have made good use of it. At the same time German Factory orders registered a much better that expected gain of 1.1% vs. -0.1% projected driven by surprisingly strong domestic demand in consumer and capital goods which offset the predictable decline from exports. No doubt the short dollar trade is becoming very crowded and at some point an event will catch FX market by surprise producing a quick 300-400 point retracement in EUR/USD in a matter of days. Unfortunately, it's impossible to know if this will occur when the pair is at 1.35, 1.37 or even 1.40. For the time being the trend remains up, though chasing it at these levels could be problematic.