Tuesday February 1, 2005 - 15:31:01 GMT
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Forex Market Commentary and Analysis (1 February 2005)
The euro came off modestly vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3005 level and was capped around the $1.3070 level. Many traders are in a wait-and-see mode ahead of tomorrow’s Federal Open Market Committee interest rate decision at 1915 GMT. Most Fed-watchers expect a 25bps monetary tightening. The real question is whether policymakers will continue to include “measured pace” language in their statement or whether they will drop it in favour of more hawkish language. A 25bps hike would also increase the positive interest rate differential of U.S. assets over eurozone assets, especially with the European Central Bank expected to keep monetary policy unchanged on Thursday. Some traders are also on the sidelines ahead of this weekend’s G7 meeting of finance ministers and central bankers in London. Most of the suspense regarding China’s RMB plans has disappeared following statements from Chinese officials at the World Economic Forum in Davos, shifting the spotlight back on the U.S.’s sizable budget and current account deficits. The communiqué is not expected to call for radical new language regarding FX regimes with a reiteration of the 2004 Boca Raton FX statements the most likely scenario. Data released in the U.S. today December construction spending up 1.1% while the January ISM manufacturing index came in at 56.4, off from 58.6 in December. The employment sub-index came in at 58.1 from 53.3 the previous month – perhaps a good harbinger ahead of Friday’s U.S. non-farm payrolls number. Also, retail chain store same-store sales were off 1.9% w/w in the week ended 29 January. Traders are also awaiting President Bush’s State of the Union address tomorrow night. His inaugural address was geopolitically hawkish and traders want to see if he retains the same type of impassioned rhetoric or if he sheds fewer clues about this plans for global hotspots including Iran, North Korea, and Syria. Also, any indication that Bush is serious about reining in fiscal spending could give the dollar a boost. Data released in the eurozone today saw German consumer prices fall 0.4% m/m in January and climb 1.6% y/y. Also, EMU-12 PMI rose to 51.9 in January from 51.4 in December, exceeding forecasts with Germany, France, and Italy posting improvements in their respective manufacturing indices. December EMU-12 unemployment ticked down to 8.8% from 8.9% while German December machinery and plant new orders came off 1.0% y/y. Euro bids are cited around the $1.2960 level.
The yen weakened vis-à-vis the U.S. dollar today but was confined to a fairly tight range as the greenback failed to pierce the ¥104.00 figure and was supported around the ¥103.50 level. Stops were hit above the ¥103.80 level during early European dealing, lifting the pair to the ¥104.00 level for the first time since 25 January. Early North American dealers kept the pair supported above the ¥103.60 level. One reason cited for the yen’s losses was a comment from a G7 source indicating policymakers do not expect China to liberalize its yuan currency policy at this weekend’s meeting. Japanese finance minister Tanigaki said the decision rests entirely with China but added he hopes China “will take appropriate steps” soon. The Nikkei reported fifteen private research organizations believe the economy grew 0.1% q/q between October and December, and at an annualized rate of 0.4%. This forecast compares with 0.2% in the previous quarter and suggests economic growth is receding in the world’s second largest economy. Preliminary GDP data for the October – December period is expected on 16 February. Interestingly, personal consumption is forecast to have fallen in the period in what would be the first decline in two years but this should be at least partially offset by an improvement in capital investment. The Nikkei 225 stock index lost a marginal 0.03% to close at ¥11,384.40. Dollar bids are cited around the ¥103.35 level. The euro was little changed vis-à-vis the yen as the single currency was supported around the ¥135.05 level and was capped around the ¥135.55 level. In Chinese news, the Development Research Center estimated China’s GDP will expand 8.5% in 2005 with the CPI growing by around 3.0%. DRC reported fixed asset investment should rise around 20% in 2005 with exports climbing 15% to 20% and personal consumption up another 10%.
The British pound receded modestly vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8780 level after Australasian dealers lifted the pair to an intraday high around the $1.8865 level. The pair moved to intraday lows after it was reported the January manufacturing PMI came in at 51.8, its lowest level since July 2003 and below expectations of a modest rise. Other data released today saw an increase in net new consumer debt in December to ₤1.52 billion from ₤1.36 billion in November. Also, it was reported that the number of mortgage approvals and loans both increased. Traders looking to make heads or tails out of the current real estate market in the U.K. will need a couple of more months of housing market data to determine if the recently reported downtrend continues. Bank of England’s next interest rate announcement is expected on 10 February and no change in monetary policy is expected. Cable bids are seen around the $1.8775 level. The euro was little-changed vis-à-vis the British pound as the single currency tested bids around the ₤0.6915 level and was capped around the ₤0.6940 level.
The Swiss franc lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1950 level, reaching stops above the 100-hour moving average around the $1.1935 level. Traders moved into dollars after the January Swiss PMI failed to meet expectations. Swiss CPI and trade data will be released on Thursday. Dollar offers are cited around the CHF 1.1975 level. The euro gained ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5545 level and was supported just below the CHF 1.5500 figure.
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