Thursday February 24, 2005 - 15:11:47 GMT
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Forex Market Commentary and Analysis (24 February 2005)
The euro extended recent gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3270 level and was supported around the $1.3195 level, just short of another multi-week high. An indication the dollar would continue to weaken materialized when the greenback failed to strengthen much yesterday following the release of Federal Open Market Committee meeting minutes in which policymakers made it abundantly clear U.S. interest rates are moving higher. Technically, the $1.3215 and $1.3195 levels hold the short-term key for the common currency as they relate to significant retracement levels. Many dealers believe the U.S. interest rate differential story that supported the dollar in January has run its course and traders have again started to focus on the U.S.’s mammoth deficits and compositions of foreign monetary authorities’ foreign reserves. Data released in the U.S. today saw headline January durable goods orders off 0.9% while the ex-transportation print was +0.8%. Other data released today saw weekly initial jobless claims gain +9,000 to 312,000 while continuing claims printed around 2.65 million. Recent weekly claims data may portent the release of a relatively strong February U.S. non-farm payrolls number next Friday. Data released in the eurozone today saw January German import prices rise 0.8% m/m and +2.9% y/y. Also, some provisional German states’ consumer price inflation rose 2.2% y/y this month. European Central Bank President Trichet today said structural reforms will continue to growth and job creation. Options traders cite an option barrier around the $1.3300 figure that rolls off at 1500 GMT today. Euro bids are seen around the $1.3185 level while euro offers are seen around the $1.3270/90 levels.
The yen moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.10 level and remained supported around the ¥104.60 level. The move back above the ¥104.85 level was technically significant as it is around the 38.2% retracement of the 2005 range. Dollar bulls are now eyeing the ¥105.55 and ¥106.70 levels, the latter being the 38.2% retracement of the 2004/ 2005 range and around the dollar’s failure and peak on 10 February. Dollar demand from Asian central banks was again topical overnight as Bank of Korea’s Park reiterated there is no plan for his central bank to reduce U.S. dollar exposure now but added the British pound and Canadian dollar are currencies BoK would consider accumulating for reserves in the future. Data released in Japan today saw same-store supermarket sales rise 0.9% y/y last month, the first increase in eleven months. Also, same-store supermarket sales receded 3.0% y/y, the eleventh consecutive monthly decline. Other data released today saw Japanese investors as net sellers of foreign securities for a second consecutive week as accounts dumped a net ¥304.9 billion in foreign bonds. Foreign investors purchased ¥343.1 billion in Japanese equities and bought ¥289.7 billion in Japanese bonds. Bank of Japan Policy Board Fukuma spoke overnight and said “undersubscription” in (BoJ) money market operations is indicative of stabilization in the financial system. Similarly, Bank of Japan Governor Fukui said this phenomenon is “a message from the market that the economy and the financial system are moving in a desirable direction.” Fukuma also reiterated the central bank’s long-standing quantitative easing policy should not be altered until consumer price inflation rises. Ministry of Finance’s Hosokawa indicated Asian policymakers who convened in Bangkok two days ago did not discuss stopping the dollar’s decline. The Nikkei 225 stock index gained 0.27% to close at ¥11,531.15. Dollar bids are seen around the ¥104.30 level and dollar offers are cited around the ¥105.50 level. The euro gained ground vis-à-vis the yen as the single currency tested offers around the ¥139.20 level and was supported around the ¥138.45 level. Stops were triggered above the ¥138.80 level during European dealing. In Chinese news, People’s Bank of China indicated it will “actively promote” reform of its exchange rate system this year “while maintaining a steady yuan around a balanced and rational level.” PBOC also reported China registered a capital account surplus of US$ 112 billion in 2004, more than double 2003’s US$ 52 billion surplus while its current account surplus escalated to US$ 70 billion from US$ 45 billion. PBOC also reported inflation pressure is not
The British pound was little-changed vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9135 level and remained supported around the $1.9015 level. Decent buying activity was seen around the $1.9030 level during European dealing, coincident with the 50% retracement level of the December 2004 – 2005 range. Data released in the U.K. today saw business investment rose 0.7% in Q4 from the previous three-month period and up 4.9% y/y – the highest reading on record. Bank of England Monetary Policy Committee member Lomax spoke today and said “The MPC faces a familiar dilemma, torn between the importance of well grounded analysis and the need to act promptly. Since interest rates take a year or more to affect the economy, we need to be pre emptive, to head off trouble at the pass so to speak, even at the risk of sometimes taking the wrong decision.” This tinge of hawkishness in her statements follow February MPC meeting minutes released yesterday that saw MPC’s Tucker part company with his colleague and vote for a +25bps monetary tightening this month. BoE-watchers may remember that Lomax also argued for pre-emptive interest rate hikes last July. Talking about exchange rates, she added “sharp adjustments” may materialize if the U.S. current account deficit is balanced out. Cable bids are seen around the $1.9030 level while cable offers are seen around the $1.9150 level. The euro moved marginally lower vis-à-vis the British pound after the single currency failed to sustain a move to the ₤0.6960 level and later tested bids around the ₤0.6920 level.
The Swiss franc came off marginally vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1655 level and was supported around the CHF 1.1590 level. Technically, the pair has been unable to move back above the 61.8% retracement level of the pair’s 2005 correction in recent sessions. Some traders believe rekindled volatility in commodity prices – oil and gold are trading above $50.00 and $425.00, respectively – will benefit the Swiss franc, as will heightened geopolitical tensions involving Iran, Syria, and North Korea. The Swiss February KOF leading indicator will be released tomorrow. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5410 level while the British pound moved higher to test offers around the CHF 2.2260 level.
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