Tuesday November 16, 2004 - 17:12:56 GMT
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Forex Market Commentary and Analysis (16 November 2004)
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2995 level before backing off. The move to an intraday high was an asymmetric response to U.S. economic data that saw the October headline producer price come in at +1.7%, the highest figure since January 1990’s 1.9%. The ex-food and energy PPI came in at +0.3%. The euro came off and tested technical support around the $1.2945 level after the release of the Treasury International Capital (TIC) report that evidenced net foreign purchases of U.S. securities grow to $61.0 billion in September from $60.2 billion in August. Economists noted a further decline in equity purchases and an increase in net private purchases of Treasuries. Many traders believe the common currency is preparing another assault on the $1.3000 figure following the dollar’s inability to sustain any traction after these decent economic data. Traders await tomorrow’s CPI data to see if producer price inflation permeates to the retail sector. Many Fed-watchers believe the FOMC is evenly split between not hiking rates and a 25bps tightening at its final policy meeting in December. Recent comments from Ferguson and Yellen in the Fed make it unlikely the Fed will deviate from its “measured pace” and traders await more clues from Fed’s Santomero and Moskow today. All eyes are on this week’s G20 meeting in Berlin to see what sort of statements emerge regarding the euro’s strength, U.S. deficits, and the Chinese yuan. U.S. Treasury Secretary Snow managed little more than “the U.S. supports a strong dollar policy” in comments about the dollar. Austria’s Grasser last night said sharp moves are “undesirable” while Tumpel-Gugerell reiterated ECB President Trichet’s “brutal” remark. Belgium’s Reynders called the weak dollar “worrying” while France’s Sarkozy said Europe’s position is “united.” Some dealers believe Snow will blame the widening U.S. current account deficits on weak European economic growth to thwart criticism of the weak dollar. IMM data released yesterday saw net long positions taken by euro speculators increase to 57,529 from 53,465 the previous week. Euro bids are seen around the $1.2920/$1.2830 levels.
The yen weakened modestly vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.70 level after testing bids around the ¥105.20 level. Today’s low represented another successive multi-year low as dealers continue to probe the ¥105 handle for stops and to test Bank of Japan’s resolve to conduct yen-selling intervention. The move took place even though Japan’s government downgraded its economic outlook on the economy, citing weaker exports and production. It noted, however, that personal consumption and capital spending are continuing to recover. Economists expect an upgrade to personal consumption in December when revised GDP numbers are released. Economy Minister Takenaka verbally intervened overnight, saying Japan will continue to closely monitor developments in the FX market. He said the current U.S. “soft patch” and rise in oil prices have affected Japan’s output. Finance minister Tanigaki will not attend this week’s G20 meeting in Berlin but today said “Foreign exchange rates have moved considerably since the last G7 (Group of Seven) meeting (in October). There is no doubt this will be a focus of discussion.” Tanigaki also verbally intervened and said “high oil prices…expected to draw attention in the debate on the world economic outlook.” Traders noted a Nikkei report today that suggested Japan thinks “U.S. fundamentals require a weaker dollar and with tacit U.S. government approval…the MoF is not in a position to intervene.” The Nikkei 225 stock index came off 0.59% to close at ¥11,161.75. Dollar support is seen around the ¥104.65/20 levels with additional demand around the ¥103.70 level. Dollar offers are seen around the ¥105.60/ ¥106.00 levels. The euro moved higher vis-à-vis the yen today as the single currency tested offers around the ¥136.85 level after testing bids around the ¥136.20 level. In Chinese news, People’s Bank of China made some progress in easing controls over its capital account with a rule that will permit emigrants and overseas Chinese residents to transfer their assets abroad. Also, President Hu Jintao is likely to receive some pressure to liberalize the RMB’s exchange rate at the APEC summit in Santiago this weekend. One clue that China will not announce any major plan this weekend was a recent statement from Vice Finance Minister Lou Jiwei who said “China's foreign trade will amount to about US$1.1 trillion US dollars, while the trade imbalance is estimated at less than 10 billion dollars, which is insignificant. Therefore, China has no need to readjust its forex rate.”
The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8565 level and remains above the key $1.8510 technical resistance level. Sterling shrugged off a weak overnight RICS survey that evidenced the worst reading on house prices since December 1992. Other data released today saw October CPI at +0.3% m/m and +1.2% y/y, in-line with forecasts. The increases were attributable to increasing energy costs but do not change the inflation outlook following last week’s less-than-hawkish quarterly inflation report from Bank of England. Cable bids are seen around the $1.8450 level. The euro came off marginally vis-à-vis the British pound today as the single currency tested bids around the £0.6990 level and was unable to get through the £0.7020 level.
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