Wednesday October 13, 2004 - 14:27:35 GMT
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Forex Market Commentary and Analysis (13 October 2004)
The euro steadily depreciated vis-à-vis the U.S. dollar today as the single currency was offered from the $1.2340 level during European dealing and didn’t find a floor until the $1.2230 level was tested during North American dealing. Stops were hit below the $1.2285 level during early North American dealing and the pair soon fell below technical support that was equal to the 6 October low. Data released in the eurozone today saw Italian industrial output off 0.8% m/m in August. There were not many other data released in the eurozone today. European Central Bank policymaker Quaden said there is no major need to react to the oil price shock if wage growth remains moderate. Most ECB-watchers now believe the central bank will be on hold through the end of 2004 despite recent comments from ECB’s Caruana that eurozone inflation will not fall below 2.0% until the beginning of 2005. Dealers had been citing some large bids around the $1.2290/80 levels from an Asian central bank but these were easily absorbed today. Traders await many data scheduled for released in the U.S. tomorrow and Friday.
The yen extended its recent gains vis-à-vis the U.S. dollar today as the greenback tested offers above the psychologically-important ¥110.00 figure for the second time this week. A brief lunge back to the ¥109.70 level during European dealing was short-lived as traders pushed the pair higher, hitting some stops above the figure. Bank of Japan left monetary policy unchanged, as expected, and will continue to target a current account deposit target of ¥ 30 – 35 trillion. Also, the BoJ’s monthly report reiterated that Japan’s economy continues to recover and said the impact of oil prices must be closely monitored. Data released in Japan overnight saw August industrial output downwardly revised to +0.1% from a preliminary reading of +0.3% while capacity utilization was downwardly revised to +0.4% from July’s +0.5% reading. The move to an intraday low during Australasian dealing was precipitated by other data that showed Japan’s current account surplus rose 2.3% y/y in August to ¥1.4470 trillion, exceeding many expectations of a +20%+ decline. Options traders are noting that one-month volatilities have fallen from 8.5% to 7.90% in recent sessions, indicating traders believe the market will become more rangebound. A drop in front-month NYMEX crude futures to the $51.75 level has had little immediate benefit for the yen today. The Nikkei shed 0.05% to close at ¥11,195.99. Dollar offers are cited around the ¥110.30/60 levels with the ¥111.00 figure cited as an options barrier. Dollar bids are now seen around the ¥109.70/30 levels. The euro came off vis-à-vis the yen today as the single currency tested bids around the ¥134.60 level after the cross failed to get through the ¥135.55 level and hit stops below the ¥135.15 level.
The British pound shed ground vis-à-vis the U.S. dollar today as cable tested bids around the $1.7845 level after European dealers were unable to push the pair above the technically-important $1.7930 level. Slight traction higher was seen when U.K. labour data saw the number of UK persons claiming unemployment benefits fall 200 in September while the ILO measure saw the number of unemployed fall by 51,000 in the three months to August with the unemployment rate hanging steady at 4.7%. Bank of England watchers are largely still undecided about the possibility of an interest rate hike by the MPC next month. BoE Governor King last night said there were not many U.K. inflationary pressures at this time but said the course of monetary policy is up in the air. Cable bids are cited around the $1.7840 level. The euro weakened vis-à-vis the British pound today as the single currency tested bids around the £0.6850 level and was capped around the £0.6885 level.
The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2660 level after decent bids emerged around the CHF 1.2535 level during early European dealing. Stops were hit above the CHF 1.2590 level and those catapulted the pair to intraday highs. Dollar offers are cited ahead of the CHF 1.2700 figure. The euro weakened vis-à-vis the Swiss franc today as the single currency tested bids around the CHF 1.5435 level after encountering offers around the CHF 1.5530 level.
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