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Monday, December 18, 2006

EUR/USD: Models Turn Against EUR; Asian Buying Seen

Dealers are blaming model funds for the sudden jump in the greenback. Many are coming to the realization that a USD bottom for 2006 is likely in place and they are taking profits accordingly. Apparently some clients pay hedge funds larger percentages on realized versus unrealized profits, and that is one catalyst for the funds to harvest profits during December.

Also helping is talk that Goldman sees US rate cuts in 2007, but to the 4.50% from earlier forecasts of 4.0%, down from 5.25% today. An Asian central bank is rumored buying in the 1.3050/55 area, helping keep EUR/USD from sliding significantly below the 50% retracement of the 1.2765/1.3365 rally which comes in at 1.3066.

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