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Outlook For The Second Half Of The Year
by Walid Salah El din

In US, after we have seen more than a year of USD slump
across the broad we have seen the first month of USD
appreciation. The currencies traders need to see much more
evidences sustaining the US fundamentals after the last
Fed's cut to make them believe that it is the last one and
the cuts spiral cycle had ended and the US economy is to
see economic recovery in the next half of the year in
light of better economic conditions and market certainty
and yielding of the current accommodative monetary policy
easing. However there is no sign yet of bottoming out in
the labor market but the weaker dollar and the mild
inflation as the current lower oil prices which is
expected to be lower in the future. All of these should
help boosting growth and expansion in the second half of
the year and by the same way helping the USD especially as
the ask for longer term US treasury has started to grow in
anticipation of less probability of coming further rates
cut and in the same time the stock market and business
spending in general is cheered with the new cut which can
drive the benign growth faster. Technically USD is due to
correction across the broad and simply the waited coming
fundamentals can help USD to correct.

In Europe, the strong EUR is still to form an obstacle to
the growth and the equity market in its trying to catch up
with the US one. The manufacturing sector is still weak
and in contraction so that they are looking now for faster
tax cuts to help the allied economy in Germany as they are
still suffering a high unemployment rate and deflation
signs and weak in business and consuming spending numbers.
No expectation of another interest rate cut coming soon
but may be before the end of the year to help boosting the
recovery in faster stances like what Fed has stepped
recently to.

In UK, the situation is much bright and the business and
the consumer spending are higher rates are higher than US
and EU ones. Also the last high consumer credit rates have
referred to the same result. The weak GBP comparing with
EUR helped the first positive trade balance number we can
see since 13 years. But as well as the traders focus is on
UK EUR adopting between .75 and .85 EUR/GBP levels then we
can see GBP weaker or at least EUR outpaced. Also after
George retirement we can see a coming cut can be suitable
with the current weak inflation in UK especially after
turning to HICP from RIPX which we see can effect on the
monetary decision as well as there is a real tend for
adopting to the EUR. But over the entire situation in UK,
it is much better and faster to economic recovery than EU
until now and no signs of something else as UK
fundamentals are outperform its counterparts in EU.

In Switzerland, the situation can be exacerbated with
stronger CHF and the SNB has started to threat the market
with coming interventions and boosting money or buying
foreign bonds to weaken the Swiss frank and the signs of
recovery is still weak and in light of already low
interest rates we see it is not easy. But the high level
of EUR/CHF could help and can help further the Swiss
exports to EU especially after the war against Iraq.

In Japan, and when we want to talk about Japan we should
mention the intervention and the market fear of
interventions which have capped the JPY appreciation
during more than a year. The Japanese officials always
talk about how the US fundamental are better than the
situation in Japan and how the forex market should reflect
that difference even by force!
Recently we have seen very better than expected Tankan
survey numbers that Japan Q2 Tankan large manufacturer's
diffusion index -5.0 and the previous and the expected was
just -10.0. Also and the Most significant of the large
manufacturing numbers was the capital expenditures outlook
for 2003-2004, which has shown better than expected
numbers the first time in about three years as it has
risen to its best level in about 13 years at 11.5%. That
is beside Japan manufacturing PMI rises above 50 in June
to 10-month high at 50.4. And it has shown an increase in
output, and new orders to be back above 50 and also we
have seen a robust in the Japanese stock market following
the US equities especially the technology stocks of NASDAQ
in better market certainty and hopes for higher US growth
in the second half which the Japanese officials always use
to enforce the market to believe that the USD should be
stronger and the JPY should be lagged behind in slower
growth and the forex market should reflect these

For commodities currencies, we see a continuous progress
against other currency majors in stable recovery and
better business spending atmosphere however we see slower
growth in Canada can drive CAD lower in the second half of
the year and we can see soon USD/CAD above 1.38 and there
can be further cut before the end of the year from RBA for
lower prices and mild inflation more than to spur growth
but CAD can be cut for the expected weaker growth in the
second half of SARS and mad cows.

FX consultant
Walid Salah El din
Cairo, Egypt.

This article courtesy of http://www.investment-index.com.
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