Dec. 18, 2006 — The U.S. is trading higher across the board. We stick with our forecast expecting EUR/USD to tests 1.3040 and breaking 1.30 to 1.2970 this week, and USD/JPY to retest 118.60 and onto 119. We extend this call to AUD/USD expected to test 0.7750 and GBP/USD to test 1.9420. The fundamental catalyst for fresh dollar gains today could be the December Homebuilders Survey (1 p.m. EST) expected at 34 from 33. Any figure above 33 should sustain dollar gains.
This morning’s release of the U.S. first quarter current account showed a rise to $225.6 billion from $217.1 billion in the second quarter, in line with expectations. Although the goods trade deficit reflected a slowdown in the pace of the deterioration, the capital account deficit shows net foreign disinvestment (net sales) in U.S. treasuries to $7.2 billion following a net investment (net purchases) of $9.8 billion in the second quarter. These two items are in line with the net foreign sales of U.S. treasuries seen in the September Treasury International Capital System (TICS) report, which was the first net selling since February 2003, which coincided with dollar declines ahead of Iraq invasion risks, and in line with the improvements in the trade deficit.
We expect the fundamental catalysts for further EUR/USD losses being tomorrow’s German Ifo Business Climate Index survey showing a decline from its 15 ½ year highs of 106.8, which should evoke worries about euro strength and gross domestic product (GDP) growth cooling in fourth quarter.
Similarly, the fundamental catalysts for further sterling losses are seen from the minutes of the Bank of England’s minutes, due Wednesday, showing a near unanimous decision to leave rates unchanged at 5.00% in this month’s meeting, which could weigh on expectations of a January rate cut.
Finally, we warned on Friday afternoon that gold could show further losses after falling below $620, and now it is extending these losses to $613 and ominously approaching the 100-day moving average of $609.30. This level coincides with the two-month trendline support. Key support stands at $605.
Ashraf LaidiChief FX AnalystCMC Markets US140 Broadway, 30th FloorNew York, NY 10005Tel: 212.644.4220Fax: 212.644.4222Cell: 646.639.6825 Email: a.laidi@cmcmarkets.com
