Tuesday November 9, 2004 - 14:56:14 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (9 November 2004)
The euro ceded some more gains vis-à-vis the U.S. dollar today as the single currency fell to the US$ 1.2885 level before reclaiming the $1.2900 figure. The pair was unable to advance past the $1.2940 and from there was driven lower in a technical move than saw stops reached below the $1.2920 level. Traders were unimpressed with a weaker-than-expected German ZEW survey that saw the expectations index fall to its lowest level in nearly two years at 13.9. This is down from October’s reading of 31.3. The current conditions index improved to -57.8 from the previous reading of -58.9. The decline in the expectations index is said to be linked to the euro’s recent appreciation. The two major events over the next day will included tomorrow’s U.S. trade deficit data and the FOMC’s interest rate decision. Traders expect a slight narrowing of the trade deficit and see the number coming in around $53-54 billion. Traders are also interested to see how hawkish the FOMC’s monetary policy statement will be and what it means for the December FOMC. Most Fed-watchers anticipate a 25bps hike in the federal funds target rate tomorrow. Traders noted more verbal intervention from an ECB official today when Quaden said “it would be undesirable if the euro’s appreciation continues and even less so should it accelerate.” This followed ECB President Trichet’s rhetoric yesterday in which he became more vociferous in protesting the euro’s ascent. U.S. Treasury spokesman Nichols yesterday indicated the U.S.’s long-standing strong dollar policy “has not changed.” Euro bids are cited around the $1.2860 level.
The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.95 level after finding bids around the ¥105.45 level. Finance minister Tanigaki verbally intervened during Australasian dealing saying the government would “take action timely and decisively” if FX rates “deviated from economic fundamentals.” While this represents an increase in official rhetoric, most traders believe Bank of Japan would not be on the bid for dollars until the pair reached the ¥103 handle. Traders can expect more rhetoric from MoF officials if the pair remains in the ¥104-105 range given the explosiveness with which the yen can appreciate. Recent Japanese economic data have been less-than-strong and there are many data scheduled for release this week. The event risks this week for a lower dollar include tomorrow’s trade data and FOMC interest rate decision. The Nikkei 225 stock index came off 0.17% to close at ¥10,964.87 while the TOPIX fell 0.22%. Dollar bids are cited around the ¥105.30 level and dollar offers are seen around the ¥106.25 level. The euro gained ground vis-à-vis the yen today as the single currency tested offers around the ¥136.75 after finding good demand around the ¥136.15 level. Technically, the cross hugged the 100-hour moving average earlier in the session before moving back to the ¥136.50 level. In Chinese news, the Asian media is reporting that China has been selling U.S. dollars in recent sessions to prepare itself for its gradual liberalization of the RMB.
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8510 level after trading around the $1.8575 level early European dealing. Data released in the U.K. today saw the trade balance deficit narrow to £4.5 billion from £5.2 billion last month. The improvement was attributable to tbe best export demand in two years. This makes senses given sterling’s recent depreciation on a trade-weighted basis. Chancellor Brown spoke today and said the U.K. government will meet its fiscal obligations despite the weakness of tax receipts. He suggested next month’s pre-budget report will not be characterized by pre-election giveaways. Cable bids are seen around the US$ 1.8510 level. The euro was off modestly vis-à-vis the British pound today as the single currency tested bids around the £0.6950 level.
The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1860 level before moving back below the CHF 1.1850 level. The pair has now retraced 38.2% of the move from CHF 1.1990 to CHF 1.1755. Traders await comments from Swiss National Bank’s Hildebrand today. Dollar stops are cited above the $1.1900 figure. The euro tested offers around the CHF 1.5290 level before moving to the CHF 1.5260 level during North American dealing.
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