Wednesday May 14, 2008 - 15:27:23 GMT
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Forex Market Commentary and Analysis (14 May 2008)
The euro depreciated
vis-√†-vis the U.S. dollar today as the single currency tested bids around
the US$ 1.5395 level and was capped around the $1.5485 level. Technically, today‚Äôs intraday low was right
around the 38.2% retracement of the move from $1.4430 to $1.6020. Technically, today‚Äôs intraday low was right
around the 61.8% retracement of the move from $1.5285 to $1.5570. Data released in the U.S. today saw
April consumer price inflation rise 0.2% while core inflation was up a mere
0.1%, below forecasts. On an annualized basis, overall inflation was up 3.9%
y/y and core inflation was up 2.3% y/y, the slowest pace since August. Even though core inflation remains above the
Federal Reserve‚Äôs perceived 2.0% upper comfort ceiling, they indicate a recent
moderation in price pressures. San Francisco Fed President Yellen said recent
inflation data have been ‚Äúdisappointing‚ÄĚ and added rising food and energy
prices ‚Äúcould lead to higher inflation expectations and an erosion of our
credibility.‚ÄĚ Today‚Äôs inflation data may
give the Federal Reserve a little bit of additional room to ease monetary
policy if it deems fit. Former Fed
Chairman Greenspan last night said U.S. house prices should bottom out
by early 2009. It was reported that U.S. April
foreclosures rose 4% to 243,353, up 64% y/y.
In eurozone news, EMU-15
industrial output was off 0.2% m/m and up 2.0% y/y. French finance minister Lagarde talked about
exchange rates saying the market ‚Äúbetter understood‚ÄĚ the Group of Seven‚Äôs
message on exchange rates from 11 April regarding the overvaluation of the
euro. Eurogroup chairman Juncker said
Ecofin finance ministers welcome the euro‚Äôs recent depreciation. Euro bids are cited around the US$ 1.5230
The yen depreciated
vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•105.40
level and was supported around the ¬•104.55 level. Technically, today‚Äôs intraday high was right
around the 76.4% retracement of the move from ¬•108.60 to ¬•95.70. Data released in Japan overnight saw the April
corporate goods price index rise 3.7%, down from March‚Äôs 3.9% that represented
the fastest annual rise since February 1981.
It was also reported that Japan‚Äôs current account surplus
fell 12.3% y/y to ¬•2.882 trillion in March while the trade surplus was off
29.0% y/y to ¬•1.25 trillion. Capital
flows data released overnight saw foreigners purchase a net ¬•1.184 trillion in
Japanese equities last month. Most
traders believe Bank of Japan will keep the overnight call rate unchanged at
0.50% for several months after recently moving back to a neutral monetary
policy stance from a rate normalization stance.
The Nikkei 225 stock gained 1.18% to close at ¬•14,118.55. Dollar bids are cited around the ¬•101.35
levels. The euro moved higher vis-√†-vis the yen as the single currency
tested offers around the ¬•162.90 level and was supported around the ¬•161.70
level. The British pound and Swiss franc gained ground vis-√†-vis the yen
as the crosses tested offers around the ¬•204.95 and ¬•99.80 levels,
respectively. The Chinese yuan
appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 6.9889
in the over-the-counter market, down from CNY 7.0030. People‚Äôs Bank of China released its quarterly
monetary policy report overnight in which it noted it will continue to tighten
monetary policy to counter inflation by using bank reserve requirements and
open market operations. Data released in
overnight saw industrial value-added output up 16.3% between January and April.
The British pound came off
vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.9365
level and was capped around the $1.9475 level.
The pair continued its recent sell-off and reached its lowest level
since 22 January. Bank of England
released its May quarterly inflation report overnight and indicated inflation
should remain elevated for a longer period than previously anticipated. The central bank‚Äôs base case scenario sees
the annual CPI inflation rate reaching 3.6% later this year on account of
higher energy and import costs.
Moreover, BoE‚Äôs range of forecast probabilities indicates there‚Äôs a real
chance inflation could rise to 4% or higher.
BoE Governor King warned the U.K. may experience an ‚Äúodd quarter
or two‚ÄĚ of negative economic growth and said the Monetary Policy Committee is
‚Äúfacing its biggest challenge yet.‚ÄĚ Coupled with rising inflation, negative
economic growth would technically represent economic stagflation. Traders have reduced their expectations about
the likelihood of another rate cut from BoE next month. Elsewhere in the U.K., Chancellor of the Exchequer
Darling unveiled a surprise ‚ā§2.7 billion tax cut today. Data released in the U.K.
today saw the April claimant count of unemployment up 7,200, the third
consecutive monthly rise. Cable bids are
cited around the US$ 1.9360/ 1.9100 levels.
The euro moved higher
vis-√†-vis the British pound as the single currency tested offers around the
‚ā§0.7965 level and was supported around the ‚ā§0.7925 level.
The Swiss franc
depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers
around the CHF 1.0600 figure and was supported around the CHF 1.0510
level. Technically, today‚Äôs intraday low
was just above the 50% retracement of the move from CHF 1.0625 to CHF
1.0390. U.S. dollar offers are cited around
the CHF 1.0760 level. The euro and British pound gained
ground vis-√†-vis the Swiss franc as the crosses tested offers around the CHF
1.6330 and CHF 2.0580 levels, respectively.
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