Ted Butler: Do-Or-Die Time Coming Up?

Section:

Euro Holds Near Record;
Ministers Fail to Request ECB Sales

By Joshua Krongold and Mark Tannenbaum
Bloomberg News Service
Tuesday, November 16, 2004

http://www.bloomberg.com/apps/news?
pid=10000085&sid=ay685BZOBONM&refer=europe

The euro traded within a half cent of a record against
the dollar after European finance ministers failed to
ask the European Central Bank to sell the currency
for the first time to stem its advance.

"We didn't ask the ECB anything," said Dutch Finance
Minister Gerrit Zalm late yesterday, after chairing a
euro-region finance ministers' meeting in Brussels.
The euro has risen 4 percent in the past month,
spurring European finance ministers to complain its
rally may hamper economic growth.

The European currency was little changed at $1.2956
at 5 p.m. in New York, after reaching a record high
three times in the past two weeks, according to
electronic foreign-exchange dealing system EBS.
The dollar was also little changed at 105.34 yen,
after dropping to a seven-month low of 105.17
yesterday.

"They want to indicate that they are unhappy about
the euro's rise, but don't want to signal that a
determined effort is imminent," said Robert Sinche,
Bank of America's head of currency strategy in New
York. He expects the euro to rise to a record $1.32
by year-end. The euro is up 2.9 percent this year.

Shares of European exporters, including Philips
Electronics NV, fell on concern that the euro's
appreciation will erode the value of sales in the
United States. The Dow Jones Stoxx 600 Index shed
0.7 percent to 247.24.

Exports account for a fifth of the euro region's
economy, which grew in the third quarter at the
slowest pace in more than a year. Juergen
Hambrecht, chief executive officer of BASF AG, said
on Nov. 11 the euro's advance "may become a major
issue." Exports make up a third of German gross
domestic product, Europe's largest economy.

The euro's advance is "a worry," Belgian Finance Minister
Didier Reynders said late yesterday in Brussels following
the ministers' meeting. At least six ECB council
members, including bank President Jean-Claude Trichet,
in the past week said recent currency moves were
unwelcome.

"If the ECB were very serious about this, we'd have to see
some intervention," said Steven Saywell, a currency
strategist at Citigroup Inc. in London. "Barring that, or
a cut in interest rates, which would seem to be a very low
priority, I don't think there's very much we can expect
from the ECB."

Saywell predicted the euro will strengthen to a record $1.33
in three months, about 3 cents above its current all-time
high of $1.3006, reached on Nov. 10.

"The more the euro rises, the more voices will start asking
for intervention," said EU Monetary Commissioner Joaquin
Almunia in an interview yesterday in Brussels. "It has to be
a coordinated effort but it seems that our friends across the
Atlantic aren't interested."

European complaints will fail to halt the euro's rally, said
Sonja Marten, a currency strategist at Dresdner Kleinwort
Wasserstein in Frankfurt. "For a while the market gets
scared and then after a while you move on."

ECB policy makers may sell the euro should the currency
move "quickly" toward $1.35, Marten said. "I don't know
when the market is going to have the guts to move above
$1.30 and challenge the ECB, but I don't see us going back
down."

Economic growth in the 12-nation euro region was 0.3
percent in the third quarter, the slowest in more than a
year, as the euro's gain eroded exporters' profit.

U.S. Treasury Secretary John Snow told reporters
yesterday in Dublin that "a strong dollar is in America's
interest." Markets, not governments, set foreign-exchange
rates best, he said. Snow's comments came three days
after one of his aides, on condition of anonymity, said
currency markets are operating in an orderly, favorable
way.

Comments by U.S. officials over the past few months
suggest "they're quite happy" with the dollar's decline,
said Jason Bonanca, a currency strategist in New York
at Credit Suisse First Boston. "We can see one more leg
of dollar weakness" to $1.32 per euro by year-end, he said.

The dollar is down about 22 percent since President George
W. Bush took office in January 2001, according to the
Federal Reserve's Trade-Weighted Major Currency Dollar
Index.

The U.S. currency's recent decline may stall, based on a
technical indicator some traders use to gauge a currency's
likely direction. The dollar's 14-day relative strength index
against the euro is at 67.3, after closing last week at 70.9.
The index shows how rapidly prices have risen or fallen in
a given period. A level above 70 suggests an exchange
rate may decline.

The number of investors who consider the dollar to be
overvalued fell by almost half in November, according to
a Merrill Lynch & Co. survey. A net 24 percent of investors
questioned in the survey said the U.S. currency is
overvalued, compared with 43 percent in October, according
to the survey, published in London.

The dollar failed to advance even after the Treasury
Department said international investors increased purchases
of U.S. assets in September by $63.4 billion, the most since
June.

"It would have needed to have been over 100 to turn sentiment
on the dollar around," said David Mann, a currency strategist
at Standard Chartered Plc in London.

Hedge funds and other large speculators placed record bets
on the euro to gain against the dollar in the week to Nov. 9,
U.S. Commodity Futures Trading Commission figures
showed yesterday.

The difference in the number of wagers placed by futures
traders on an advance in the euro compared with those on
a drop -- so-called net longs -- was 57,529 on Nov. 9, the
CFTC said, the most since the euro's 1999 debut.

Japan's currency fell from its strongest in seven months
after the Cabinet Office said it grew more pessimistic about
the Japanese economy in November for the first time in 17
months, citing a slowdown in exports and industrial
production.

Growth in the Japanese economy, the world's second
largest, slowed to an annual pace of 0.3 percent in the
third quarter from a revised 1.1 percent in the previous
three months.

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