What will the long-term affects of hurricane Katrina be?
The EUR/USD pair traded
30 points either side of the 1.2500 figure, jerked around by both bulls and
bears as the FX market still grappled with the question of the long term
ramifications from the hurricane Katrina disaster. Yesterday’s
impressive ISM non-manufacturing numbers which produced a healthy 65.00 reading,
boosted the dollar longs opinion that the US economy was resilient even in the
face of rising energy costs and this fact would allow the Fed to maintain its
measured rate hike policy at the September 20th FOMC meeting.
The bulls argument states that despite the massive economic shock to the Gulf
Coast region which has affected both refinery production and water transport of
key commodities and chemicals, critical assets such as the port of New Orleans
were not heavily damaged by the storm, allowing capacity to come back on line
within a few weeks.
If rescue operations and reconstruction efforts do improve from their pathetic
performance so far, the lift in sentiment may prove the dollar bulls correct, as
US consumers will likely resume their spending activity and the US economy may
receive an unexpected positive jolt from the massive rebuilding effort.
However, if disaster repair efforts settle into
an all predictable quagmire, the economic difficulties will soon weigh heavy on
the dollar. The history of all past natural disasters has been a temporary
decline in employment and economic activity, followed by a resurgent recovery
that led to greater levels of prosperity. Will history repeat itself one more
time? That appears to be theme of the week, as absent any significant economic
data, the FX market digests the “ant-dollar†gains of last week and asks —
what’s next?
Boris
Boris Schlossberg serves as Senior Currency
Strategist with Forex Capital Markets in New York, the largest retail forex
market maker in the world. He is a monthly contributor to SFO Magazine with
articles focused on understanding proper risk management, trader psychology and
true market structure. He is also a featured expert at
www.fxstreet.com and a frequent
commentator for the Marketwatch From Dow Jones Currency and Bond Report
sections.