Monday January 17, 2005 - 16:33:45 GMT
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FX Market Commentary and Analysis (17 January 2005)
The euro extended recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3080 level after failing to get above the $1.3130 level. Trading conditions were said to be thin given the U.S. holiday and reluctance to put on new long-dollar positions ahead of tomorrow’s all-important TIC data. Some estimates are forecasting US$ 55.0 billion of new net international securities transactions in November, above October’s print at $48.1 billion. These data series from the U.S. Treasury have become all-important given the U.S.’s widening trade deficit and growing inability to cover the U.S. current account deficit. German Chancellor Schroeder today indicated a deal is in the works to amend the EU’s Stability and Growth Pact before EMU-12 leaders convene in March. ECB’s Issing will speak on Wednesday and traders are curious to see if he will again be critical of Asian currency regimes. Data released in Italy today saw consumer prices rise 0.2% m/m and 2.0% y/y in December and 0.4% and 2.3% on a harmonized basis. Fed officials Stern, Bernanke, and Yellen will speak this week. Euro bids are seen around the $1.3060 level.
The yen was little changed vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥101.70 level, a five-year low, while the pair was unable to drift past the ¥102.20 level. The dollar got hammered in Friday trade with dealers testing the all-important ¥101.85 level and now talking about the ¥101.30 level. The major reason being cited for the yen’s advances is an expectation that G7 officials will step-up the rhetoric against Asian countries with inflexible currency regimes when policymakers meet in London in early February. Data released in Japan overnight saw December consumer confidence fall to 44.3 from 47.9 in November – the first decline in three months and the second fall in six months. Sub-indices were also below the 50.0 level, underscoring the public’s continued general economic pessimism. Economy minister Takenaka said the government and Bank of Japan “will keep cooperating to resolve (deflation).” The Nikkei 225 stock index gained 0.43% to close at ¥11,487.10. Dollar offers are cited around the ¥102.40 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥133.25 level and was capped around the ¥134.00 figure. In Chinese news, People’s Bank of China reported CPI is expected to climb 3.28% y/y in Q1. It was also reported that foreign trade in China’s Guangdong province reached a high in 2004. Additionally, a government report was released today that indicated fixed-assets investment growth is expected to have fallen 2.7% to 25% and a separate report indicated 82% of top global companies plan to invest more in China in the next three years.
The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8585 level after encountering resistance around the $1.8750 level. Some market participants cited a possibly-leaked December RICS house price survey as one reason why cable was given today. Deloitte and Touche released a negative report about the U.K. economy today, suggesting U.K. economic growth is slowing and the “golden” period of one decade of economic growth is ending. The report is forecasting 2005 economic growth of 2.0%, down from 2004’s approximate 3.0% level and sharply below Chancellor Brown’s 3.0% to 3.5% estimate. It was reported today that Bank of England will bolster its intelligence of financial markets to improve its monetary oversight and avoid another BCCI or Baring-like collapse. Cable bids are seen around the $1.8550 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7040 level.
The Swiss franc lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1825 level and was supported around the CHF 1.1775 level. December producer and import prices will be released tomorrow. Dollar offers are cited around the CHF 1.1875 level. The euro failed to pierce the CHF 1.5500 figure and tested bids around the CHF 1.5435 level.
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