Thursday December 20, 2007 - 16:44:23 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (20 December 2007)
The euro slumped
vis-Ă -vis the U.S. dollar today as the single currency tested bids around
the US$ 1.4310 level and was capped around the $1.4390 level. The common currency traded at its lowest
level since 25 October. Data released in
today saw GDP expand at an annualized 4.9% pace in the July â€“ September
quarter, unchanged from previous estimates.
Notably, the housing market recession subtracted about 1.08% in growth
from the GDP tally. Many economists
believe GDP will have expanded 1.5% or less between October and December. Other data released today saw weekly initial
jobless claims climb 12,000 to 346,000 while continuing jobless claims were up
12,000 to 2.65 million. These data
suggest the December non-farm payrolls report that will be released in a couple
of weeks could be on the light side.
Additionally, the Chicago Fedâ€™s November national activity index
improved to -0.27 from -0.89 in October.
The U.S. dollar gained ground on the GDP report because the core
personal consumption expenditures index expanded at a 2.0% rate in Q3, up
sharply from Q2â€™s 1.4% rate and the earlier 1.8% estimate for Q3. The 2.0% print is at the upper boundary of
the Fedâ€™s perceived comfort zone and may render it that much more difficult on
the Federal Open Market Committee to deliver another interest rate cut next
month. Still, most traders believe the FOMC will ease policy by 25bps next
month. In eurozone news, the German GfK January consumer climate index
improved to 4.5 from 4.4 in December. Euro
bids are cited around the US$ 1.4165 level.
The yen appreciated vis-Ă -vis the U.S.
dollar today as the greenback tested bids
around the ÂĄ112.90 level and was capped around the ÂĄ113.35 level. The pair has traded in a narrow 75-pip range
all week as traders are loath to assume too much market risk ahead of the
illiquid Christmas and New Year holiday period.
As expected, Bank of Japanâ€™s Policy Board voted to keep the overnight
call rate unchanged at 0.50%. Surprisingly, however, the vote was unanimous
with hawkish Policy Board member Mizuno not voting to hike rates for the first
time in six months. The BoJ also
downgraded its economic assessment in December, noting economic growth is
slowing on account of a decline in housing starts and business sentiment. Data released in Japan today saw the November
merchandise trade surplus fall 12.2% y/y to ÂĄ797.41 billion. The Nikkei 225 stock index gained 0.01% to
close at ÂĄ15,031.60. Dollar bids are
cited around the ÂĄ112.50/ ÂĄ111.75 levels.
The euro weakened vis-Ă -vis
the yen as the single currency tested bids around the ÂĄ161.75 level and was
capped around the ÂĄ163.10 level. The British pound and Swiss franc
depreciated vis-Ă -vis the yen as the crosses tested bids around the ÂĄ223.60
and ÂĄ97.50 levels, respectively. The Chinese yuan appreciated vis-Ă -vis
the U.S. dollar as the greenback closed at CNY 7.3694 in the over-the-counter
market, down from CNY 7.3767. Peopleâ€™s
Bank of China tightened monetary policy today by lifting the one-year deposit
rate by 27 bps to 4.14% and the one-year lending rate by 18bps to 7.47%. The Bush administration opted not to cite China as a
currency manipulator yesterday.
The British pound extended recent
losses vis-Ă -vis the U.S. dollar today as cable tested bids around the US$ 1.9810
level and was capped around the $1.9985 level.
The pair reached levels not seen since 22 August as traders continued to
react to the Bank of England Monetary Policy Committee meeting minutes released
yesterday that evidenced a unanimous decision to ease interest rates. This suggests there may be momentum on the
MPC to deliver additional monetary easing in the coming months. Data released in the U.K. today saw Q3 GDP
upwardly revised to 3.3% from 3.2%, a revision that was expected on account of
the recent increase improvement in business spending. Sterling
was also dented by news that its external position is worsening
substantially. It was learned that the U.K. registered
a massive current account deficit in Q3 of â‚¤20 billion â€“ about 5.7% of GDP â€“
and upward revisions to previous quartersâ€™ deficits. Similarly, public sector net borrowing
ballooned to â‚¤11.2 billion in November, the largest ever monthly deficit on
record. Other data released today saw
the November money supply up 0.1% m/m and 11.1% y/y. Also, CML November gross mortgage lending was
off 8% m/m. Cable bids are cited around the US$ 1.9795/ 1.9640 levels. The
euro moved higher vis-Ă -vis the British pound as the single currency tested
offers around the â‚¤0.7240 level and was supported around the â‚¤0.7195 level.
franc depreciated vis-Ă -vis the U.S. dollar today as the greenback tested
offers around the CHF 1.1590 level and was supported around the CHF 1.1540
level. The pair reached its highest
level since 1 November. Swiss National
Bank Chairman Roth verbally intervened today saying the SNB would take action
â€śsooner or laterâ€ť if the franc continues to weaken. Data released in Switzerland today saw November
producer price inflation up 0.3% m/m and 3.0% y/y while the November trade
surplus was up 45.8% to CHF 1.89 billion.
U.S. dollar offers are cited around the CHF 1.1680 level. The
euro and British pound depreciated vis-Ă -vis the Swiss franc as the crosses
tested bids around the CHF 1.6575 and CHF 2.2905 levels, respectively.
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