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198658 Resource 128466 128654 128654 1204588082357 1204588082357 Controlled Asian Morning Update 4th March 2008

Is it time for concerted bank intervention?

European releases overnight:January                                       Forecast        Actual Italian PPI                        (MoM)    +0.5%        +0.4% Italian PPI                        (MoM)    +5.1%        +5.2%February Swiss SVME PMI                              61.6 (prior)    60.5 Italian Manufacturing PMI                50.2              50.6 French Manufacturing PMI                53.4              53.8 German Manufacturing PMI              54.0              54.3 Euro-zone Manufacturing PMI           52.3              52.3 U.K. Manufacturing PMI                   51.0              51.3 Euro-zone CPI (E)             (YoY)   +3.2%           +3.2%European PMI numbers remain stable to firm while producer prices keep rising to maintain the upward pressure on inflation. The ECB has been provided with a breather and while they would prefer to hike rates on Thursday they will be satisfied that manufacturing remains on a mild downward path only. The fewer areas seeing volatility will provide them with time to observe and judge reactions. Elsewhere the huge $17bn subprime writedown by HSBC was a huge shocker but softened by the fact they still managed a 17% H2 profit last year. It also raised its dividend. However, the extent of the subprime losses is still clearly unknown although estimates run at around $600bn in total. U.S. releases overnight:                                                               Forecast   Actual U.S. January Construction Spending (MoM)   - 0.7%    - 1.7% U.S. February ISM Manufacturing                    48.5       48.3U.S. numbers last night were soft but without being dramatic. Given the recent housing numbers the lower construction spending number seems a logical conclusion and is therefore nothing new to the market. It does though point to lower orders for industry and continued softness in industrial production and employment numbers. The Manufacturing ISM was just about in line with forecasts with most components seeing a slippage. New orders did see a modest increase of 0.4 to 49.5. However, the trend remains lower. Elsewhere Treasury Secretary Paulson made a firm statement in rejecting many bailout plans as being designed more for “bailing out investors, lenders or speculators who, instead of getting a free pass, should be accountable for the risks they took.” Plosser is the latest from the Fed to express his concern over inflation by commenting, “There are some signs that pressures are creeping up a bit. We can't wait too long for inflation expectations to materialize.” However, he did still place the current crisis as being more urgent and this “merits lower rates.”So for the rest of the day for the Dollar was down a bit and up a bit. The Euro just reached the 1.5268 resistance while Dollar-Yen and the Swissie held above their early European lows of 102.60 and 1.0307 respectively. Meanwhile the Pound held within is two-day range. The recent weakness in the Dollar has brought a series of comments from the ECB and also the IMF. The IMF head Strauss-Kahn declared the Euro as overvalued. His comments drew support from Trichet who urged the U.S. to support the Dollar and from Juncker who stated that he is “starting to become increasingly concerned and vigilant” about its value. In a newspaper interview a month ago Juncker commented that G7 powers had agreed they could respond collectively if markets behaved irrationally. Yesterday Trichet added, “In the present circumstances, I consider it very important what has been affirmed and reaffirmed by the U.S. authorities including the secretary of the Treasury and the president of the United States, according to whom the strong-dollar policy is in the interests of the United States of America.”Central banks pulled back from concerted central bank intervention following the period from the late 1980’s to early 1990’s as it was considered to have limited impact. We have to note that since then Forex rates have seen less annual volatility. However, we are currently seeing a situation where the largest global economy is under severe pressure. The decline in the Dollar is contributing to the already significant inflationary pressures which will only worsen consumer confidence. Europeans are clearly concerned over the strength of the Euro and the impact this has on their economy. The ECB would prefer to hike rates to reign in the surging inflationary pressure there but are held back by the credit crisis and possibly a perception that it will encourage carry trades between the Dollar and Euro.The market sentiment is exceptionally bearish Dollars to the extent that it is overwhelming all other considerations. From this perspective the prospect of the Dollar sales diminishing is hard to see.If there is any way the Dollar will reverse its fortunes than it will come in one of two forms:• European banks are hit harder forcing their own downturn; or • Concerted central bank interventionIt is not something I have generally considered as being likely or viable. However, with current excessive bearish sentiment and the risks to both the U.S. and in deed the global economies it may be something that is possible. Having said that, I don’t think that time is now. There is still more Dollar downside to go technically but we shouldn’t dismiss this possibility… More later once the daily analysis has been done… The following are economic releases from Asia due today:Japan February Monetary Base     (YoY)    +0.1% Australia January Retail Sales     (MoM)    +0.5%The RBA are due to announce their interest rate decision 9 application/xml false central bank intervention Construction Spending currencies Dollar Euro Euro-zone Forex FX ISM Manufacturing Manufacturing PMI trichet US New to Forex? Read more about currency trading http://www.gftforex.com/land/index.asp?aid=446 Mozilla/4.0 (compatible; MSIE 7.0; Windows NT 5.1; hc; .NET CLR 1.1.4322; .NET CLR 2.0.50727; MS-RTC LM 8) 127.0.0.1 127.0.0.1 ICopsey 202.216.243.97 false true false false true 128466 blog blogsite/GFTForex/web