Monday February 14, 2005 - 14:37:42 GMT
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Forex Market Commentary and Analysis (14 February 2005)
The euro notched strong gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2990 level and was supported around the $1.2875 level. Stops were hit above the $1.2935 level, key technical resistance that was given earlier this month and represents the 38.2% retracement of the move from $1.1750 to $1.3665. The pair remained supported above the key 50% retracement level of $1.2710 last week. The pair’s strong gains were partially precipitated by comments from European Central Bank Vice President Papademos who today said “the accumulation of liquidity in the long run, and also the latest acceleration of growth in both money supply and credit demonstrate the risks (to price stability). These risks could grow as economic recovery strengthens.” He added the ECB is “vigilant and ready to act.” This is one of the first indications that the ECB currently has at least a slightly hawkish bias and traders are buying euros on the premise that the gap between U.S. interest rates and eurozone interest rates could narrow. ECB’s Wellink today said he is concerned about the impact of higher real estate prices on the eurozone economy. Fed Chairman Greenspan testifies in Congress twice this week and market participants will closely monitor his remarks for any indication the Fed may drop the “measured pace” verbiage from its monetary policy statements. Most Fed-watchers believe Greenspan will confirm additional monetary tightenings are in store but another looming question is whether he will repeat his recent relatively optimistic comments about the U.S. current account deficit. Tomorrow’s Treasury international capital flows report will provide the latest evidence on how well the U.S. is bridging its current account deficit. Data released in the eurozone today saw an improvement in France’s January business climate indicator. Bank of France today reported it expects GDP growth of 0.5% in Q1, down from a previous estimate of 0.6%. Euro bids are cited around the US$ 1.2865 level.
The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥104.20 level after gapping down around the ¥105.40 level to start the week. The pair briefly tested technical resistance around the ¥105.50 level but quickly came off on strong Japanese economic data that saw the December current account surplus rise 35.1% y/y to ¥1.616 trillion. This of course compares favourably to U.S. data released last week that saw the U.S. trade deficit escalate to a record US$ 617.7 billion in 2004. It was also reported that Japan’s consumer confidence index rose to 47.4 from 44.0 in December while December industrial output was upwardly revised to -0.8% from -1.2%. Chief Cabinet Secretary Hosoda downplayed the impact of the current account data on the yen saying “data on current account and trade balances alone cannot determine” the direction of the FX market. Another report issued today confirmed foreign investors purchased a net ¥10.53 trillion of Japanese equities in 2004, up from ¥9.78 trillion in 2004. Technically, the yen has been bid since the greenback briefly tested technical resistance around the ¥106.70 level last week. The Nikkei 225 stock index gained 0.68% today to close at ¥ 11,632.20. Dollar bids are cited around the ¥104.70/45 levels. The euro moved marginally higher vis-à-vis the yen as the single currency tested offers around the ¥136.25 level and was supported around the ¥135.50 level. In Chinese news, a Chinese think tank released a report that predicted China will register a trade surplus around US$ 15 billion this year and may have some monthly trade deficits. People’s Bank of China on Saturday reported it will maintain a “basically stable” yuan at a “reasonable, balanced level.” Also, it was reported that some regional Chinese governments have downwardly adjusted their annual economic growth projections.
The British pound moved sharply higher vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8905 level and was supported around the $1.8675 level. Sterling stopped just short of testing key technical resistance around the US$ 1.8910 level but easily galloped through key technical resistance around the $1.8855 level, hitting stops around the $1.8730 and $1.8810 levels along the way. News that U.K. producer prices rose sharply in January to levels not recorded in some five years pushed cable significantly higher and has traders talking about higher rates in the U.K. Input prices moved 3.4% higher last month, their highest level since May 2004, well above expectations. Other data released today saw ODPM December house prices off 0.7% m/m and up 10.7% y/y while IDS reported it expect private sector pay deals to remain strong on account of tight labour market conditions and rises in headline inflation. Cable bids are cited around the US$ 1.8860 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6860 level and was capped just below the ₤0.6900 figure.
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1960 level after failing to get through the CHF 1.2100 figure overnight. Stops were triggered below the CHF 1.2030 level during the downturn and chartists are now eyeing the $1.1885 level as a possible retracement level. Swiss January import and producer prices will be released tomorrow. Dollar bids are seen around the CHF 1.1940 level with dollar offers cited around the CHF 1.2025 level. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5530 level while the British pound managed light gains vis-à-vis the Swiss franc and tested offers around the CHF 2.2645 level.
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