Tuesday December 28, 2004 - 14:30:49 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (28 December 2004)
The euro extended recent gains vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3640 level, right around a fresh lifetime high for the pair. Traders are taking advantage of significantly reduced liquidity by putting the pair where they want it to trade, especially with some sell-side London players still on holiday until tomorrow. Dealers are also testing new highs with the belief that European Central Bank policymakers and eurozone finance ministers have no unanimity regarding the euro’s level or an agreeable position regarding euro-selling intervention. It is probable that euro-selling intervention will not be conducted as long as the euro’s appreciation is orderly. Data released in the eurozone today saw November French retail prices at large retailers unchanged m/m and off 0.3% y/y. Also, it was reported that the December Italian manufacturing companies business confidence index fell to 88.9 from 90.1 in November, below forecasts. Data released in the U.S. today saw the ICS-UBS retail chain store sales index climb 2.7% last week with sales up 4.3% y/y – the best performance since July. There is early anecdotal and statistical evidence that U.S. holiday shoppers spent more-then-expected in the days leading to Christmas and this will likely be a positive for the U.S. dollar. Traders await December U.S. consumer confidence data today and November U.S. existing home sales tomorrow. Euro bids are cited around the US$ 1.3590 level.
The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥102.80 level and was unable to get back above the ¥103.30 level. This latest price action has traders wondering if the pair will close 2004 this week at a yearly low. As expected, finance minister Tanigaki verbally intervened overnight saying monetary authorities would “monitor the markets over the New Year holidays” but there was little reaction to his comments. After a nine-month stretch devoid of actual intervention, there is probably little chance of yen-selling intervention this week. Many dealers believe Japan will return to yen-selling intervention in 2005 but would prefer to do so jointly with the U.S. or eurozone. Data released in Japan overnight saw the November jobless rate fall to 4.5% from 4.7% in October while industrial output grew 1.5% m/m in November, below expectations. Other data released overnight saw the December Tokyo-area core consumer price index remain unchanged m/m but came off 0.4% y/y – the 63rd straight monthly decline. Also, November nationwide core CPI fell 0.2% y/y and November household spending fell 0.7% y/y. Additionally, total commercial sales in Japan climbed 5.5% y/y in November – the tenth increase in twelve months. The Nikkei 225 stock index gained 0.5% to close at ¥11,424.13, its first close above the ¥11,400 since 21 July, while the TOPIX rose for the seventh consecutive trading day. Dollar offers are seen around the ¥103.60 level. The euro appreciated vis-à-vis the yen as the cross tested offers around the ¥140.65 level and remained supported around the psychologically-important ¥140.05 level. In Chinese news, People’s Bank of China Deputy Governor Li said “future measures to be taken by the central bank will depend on (the effects) of the (PBOC’s) October rate hike and the economic situation, especially movements in the consumer price index.” The PBOC yesterday said it will implement policies so that the yuan trades at “rational” and “balanced” levels.
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