Monday, February 12, 2007

Forex News: FX Steadies Ahead of Data Filled Week

The greenback kicks off the week in mixed fashion, firmer against the yen and sterling but softer versus the euro. The US economic calendar resumes following last week’s drought. Markets will digest the December trade deficit, January retail sales, December TICS data, January industrial production, February Empire State manufacturing survey, February Philadelphia Fed index, January PPI, housing starts, building permits and the University of Michigan consumer sentiment survey. Another key point of focus for the currency market will be Fed Chairman Bernanke’s testimony before the House and Senate on monetary policy. In light of recent improvements in the US economic outlook, the likelihood of a Fed rate cut in the first half of 2007 have largely dissipated. However, we continue to anticipate a 25-bp rate cut in either the October or December policy meeting this year.

According to the CFTC IMM futures data, speculators for the week ending January 30th reduced their net dollar short positions against the euro, sterling, and Aussie. Speculative net longs for euro contracts fell by almost 25% to 45,930 contracts compared with 61,010 contracts from a week earlier. Net long contracts in GBP fell slightly to 92,728 compared with 94,728 contracts from the prior week. Speculators also reduced their holdings of AUD long contracts, with a net 61,245 long contracts, down nearly 21% from a week earlier at 77,248 contracts. Meanwhile, carry trades remain favored as evident in the CFTC futures data, with net short yen contracts edging up to 173,005 contracts up slightly from the prior week at 164,860 contracts.


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