Currency futures at the International Monetary Market (IMM) are likely to consolidate near current levels in nervous trading conditions over the next few days although underlying sentiment remains positive currency analysts said. Currencies are likely to muddle around these levels said Shearson Lehman Brothers analyst Anne Parker Mills. Traders are unwilling to establish either long or short positions in futures because of uncertainty over upcoming trade talks and U.S. trade legislation they said. Japanese prime minister Yasuhiro Nakasone and President Reagan will meet Thursday and Friday to discuss trade tensions between their two countries while at the same time the Democratic-led U.S. House of Representatives will be voting on a controversial trade bill. Unless something really surprising comes out of the Nakasone/Reagan talks I dont see the dollar getting above 142 (yen) and 1.83 (marks) Mills said. The equivalent in futures of those interbank levels are about 0.007050 to 0.007025 in the June yen contract and about 0.5500 in June marks she said. June yen closed at 0.007191 on Tuesday while June marks finished the day at 0.5602. Mills said however that the chances of them (Reagan and Nakasone) coming up with something new are limited. One possibility might be a Japanese discount rate cut but they probably wont do that unless we raise our discount rate. Recent firmness in the federal funds rate and the Federal Reserves slowness in adding reserves to the banking system has heightened sentiment that the money-policy making body has already tightened credit and a discount rate hike is possible analysts said. Recent weakness in currencies and strength in the dollar has been more the result of nervous shortcovering ahead of the meeting rather than reaction to the White House statement Monday supporting a stable dollar said Harris bank currency analyst Earl Johnson. Traders are worried about the outcome of the talks between Reagan and Nakasone and as the talks are late in the week the market may not get a chance to react to any developments until Monday Johnson said. Until then Johnson expects the dollar to remain in a broad range between 1.77 and 1.85 marks and 137 to 140.50 yen. Chicago Corp analyst John Bilson however expects a rally in the European currencies over the near-term while the yen at this point is overbought. The Japanese are moving away from the U.S. market and investment funds formerly directed to the U.S. are likely to flow into Europe Bilson said. The chief beneficiary of such a flow of funds will be sterling Bilson said. Sterling rates are about four pct above Japanese rates despite the half point rate cut Bilson said. Major U.K. banks lowered their base lending rates today to 9.5 pct. In addition to a favorable interest rate spread which should attract funds Bilson said the firm oil market and the strong political situation of Prime Minister Thatcher also make British investments attractive. Passage of the trade bill which includes an amendment by Missouri Democrat Richard Gephardt that would force a 10 pct annual cut in imports from countries with an excessive trade surplus with the U.S. if they fail to remove unfair trade barriers to the U.S. after six months of negatiations would likely pressure the yen Bilson said. Bilson however said the legislation is unlikely to pass but that Nakasone is likely to bring a promise to open Japanese markets to U.S. goods and back it up with government contracts with U.S. manufacturers.
NERVOUS CONSOLIDATION SEEN IN CURRENCY FUTURES