Monday November 22, 2004 - 14:53:31 GMT
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Forex Market Commentary and Analysis (22 November 2004)
The euro lost a small amount of ground vis-à-vis the U.S. dollar today in largely muted trading as the single currency tested offers around the US$ 1.3050 level and was supported around the $1.3010 level. There were no significant fireworks on the sidelines of the G20 summit in Berlin this weekend. Participant countries failed to agree on any significant language regarding recent FX movements in their communiqué and instead reiterated this year’s Boca Raton G7 statement about currency movements. Fed Chairman Greenspan moved the market on Friday with his remarks about current account deficits, dwindling demand for U.S. assets, and their effects on the U.S. dollar. Germany’s Schroeder said recent FX movements have been “worrying” while U.S. Treasury Secretary Snow said the U.S. is committed to reducing the record U.S. budget deficit by half over the next four years. Snow, however, also said eurozone countries need to do their part by boosting economic growth and help to reverse economic imbalances. Dealers cite the $1.3100 figure as an option barrier and offers are seen below this level. Data released in the eurozone today saw better-than-expected trade numbers for the month of September. The U.S. Thanksgiving holiday on Thursday has many participants reducing market exposure. Traders await durable goods orders, final November University of Michigan consumer sentiment, and weekly initial jobless claims on Wednesday. Euro bids are seen around the $1.3010 level.
The yen gained a small amount of ground vis-à-vis the U.S. dollar today as the greenback tested bids below the ¥103.00 figure and was unable to get through the ¥103.40 level. Japanese monetary authorities continue to verbally intervene with MoF’s Hosokawa pledging “bold action” on FX if it is needed while Bank of Japan Governor Fukui said yen appreciation could be “destabilizing and a big concern.” The lack of a coherent G20 message on FX is being interpreted by some as a sign that Japan may not have U.S. support if it intervenes by selling yen. Others believe Japan does not want to intervene by selling yen in this current widespread negative U.S. dollar environment. Traders are said to be reducing their positions ahead of tonight’s holiday in Japan and Thursday’s holiday in the U.S. One event risk for a stronger yen is this week’s Japanese CPI data. Any signs of stronger retail price pressure could see the market load up on yen again on the premise that Bank of Japan is that much closer to beginning to unwind its long-standing quantitative easing policy. The Nikkei 225 stock index came off 2.11% overnight to close at ¥10,849.39, its largest one day decline this month. Dollar bids are cited around the ¥102.70 level. The euro weakened vis-à-vis the yen today as the single currency tested bids around the ¥134.15 level after testing offers around the ¥134.75 level. In Chinese news, President Bush reiterated the U.S.’s long-standing “strong dollar” policy at this weekend’s APEC meeting in Santiago but is also said to have maintained pressure on China to revalue its yuan currency.
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8520 level after failing to challenge the US$ 1.8600 figure. The big event on the table this week is this Friday’s second estimate of Q3 GDP. Many forecasts have the data expected to come in around an unrevised 0.4%. Bank of England policymakers Large, Lomax, and Bean will speak this week and traders will also pay attention to the CBI’s monthly industrial trends survey. Rightmove reported that U.K. house prices were off 1.7% in the month to mid-November and this pressured cable in early European dealing. A U.K. media reported quoted Barclays as saying U.S. house prices could fall by up to 20% over the next three years. Cable bids are seen around the $1.8510 level. The euro moved higher vis-à-vis the British pound today as the single currency tested offers around the £0.7035 level after testing bids around the £0.7005 level.
The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1645 level after testing bids around the CHF 1.1590 level. Swiss National Bank President Roth recently said the current Swiss economic situation is “relatively comfortable,” leading to speculation the central bank will not be changing monetary next month and not intervening to arrest the franc’s strength. SNB’s Hildebrand is scheduled to speak tomorrow. Traders are looking to see if the pair can move back to the CHF 1.15 handle where it spent some time late last week. Dollar offers are seen around the CHF 1.1650 level. The euro moved higher vis-à-vis the Swiss franc today as the single currency tested offers around the CHF 1.5160 level after finding some demand around the CHF 1.5120 level.
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