Tuesday December 29, 2009 - 00:29:55 GMT
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Forex Market Commentary and Analysis (28 December 2009)
The euro moved marginally higher vis-Ă -vis the U.S.
dollar today as the single currency
tested offers around the US$ 1.4415 level and was supported around the $1.4355 level. Liquidity was light today as many market
participants celebrating Boxing Day.
Most dealers expect greater liquidity overnight during the Australasian
session with liquidity returning to normal next Monday, the first full trading day
of the year. Data released in the U.S. today saw
the December Dallas Fed manufacturing activity index improve to 3.8% from the
November reading of 0.3%. Tomorrowâ€™s
data will include the October CaseShiller home price index and December
consumer confidence. On Wednesday, the December Chicago purchasing manager
index will be released followed by Thursdayâ€™s data releases of weekly initial
jobless claims and continuing jobless claims.
The Federal Reserve today announced measures to absorb some of the US$ 1
trillion in excess reserves in the U.S. banking system. The program would involve selling term
deposits in which excess cash would be put aside, easing downward pressure on
the federal funds rate. The new program
may be used in conjunction with the Fedâ€™s previously announced plan to conduct
reverse repo operations. Assets on the
Fedâ€™s balance sheet were little changed at US$ 2.24 trillion in the latest
week. In eurozone news, European Central Bank President Trichet was on
the tape reporting bloc members must reduce their budget deficits by 2011 and â€ślive
up to their role of providing credit to the economy.â€ť Euro bids are
cited around the US$ 1.3885 level.
The yen depreciated vis-Ă -vis the U.S. dollar today as the
greenback tested offers around the ÂĄ91.75 level and was supported around the ÂĄ91.40
level. Data released in Japan overnight
saw November industrial output up 2.6% m/m while November overall retail sales
were off 1.0% y/y. Japan, China,
Hong Kong, Korea, and other Asian countries
agreed on a new US$ 120 billion measure today to address balance of payments
and short-term liquidity difficulties in the region. Last week, finance minister Fujii reported Japan has â€śdepleted
mostâ€ť of its special account funds and added it is difficult to compile a
budget for fiscal year 2010. Fujii added
monetary policy has been helpful in boosting the economy and that capital
spending remains the worst part of the economy.
Japanese government bonds sales are expected to reach a record ÂĄ144.3
trillion. Minutes from Bank of Japanâ€™s
latest Policy Board meeting were released last week in which the government
asked the central bank to monitor deflation.
The minutes revealed â€śmanyâ€ť Policy Board members agreed â€śthe bank would
maintain its stance of responding promptly to changes in the market
situation.â€ť Policymakers said the
central bank â€śwould adopt the most effective method for money-market operations
that conformed to changes in financial markets.â€ť After an emergency meeting on 1 December, the
central bank introduced a ÂĄ10 trillion fixed-rate lending facility that was
designed to arrest the yenâ€™s advances and counter deflation. The central bank also characterized the most
recent bout of deflation as â€śmild.â€ť The
Nikkei 225 stock index gained 1.32% to close at ÂĄ10,634.23. U.S. dollar offers are cited around the ÂĄ94.75
level. The euro moved higher vis-Ă -vis the yen as the single currency
tested offers around the ÂĄ131.90 level and was supported around the ÂĄ131.35 level. The
British pound moved higher vis-Ă -vis the yen as sterling tested offers
around the ÂĄ146.65 level while the Swiss
franc moved higher vis-Ă -vis the yen and tested offers around the ÂĄ88.65 level.
In Chinese news, the U.S. dollar appreciated
vis-Ă -vis the Chinese yuan as the greenback closed at CNY 6.8302 in the
over-the-counter market, up from CNY 6.8271.
Peopleâ€™s Bank of China adviser Fan Gang said the yuan should not
depreciated in the long-term but cited a risk the yuan may depreciate in the
short term. Fan added Chinaâ€™s GDP
growth rate may be between 8% and 9% in 2010 and said export growth could reach
double digits in 2010.
British pound appreciated vis-Ă -vis the U.S. dollar today as cable tested offers
around the US$ 1.6015 level and was supported around the $1.5930 level. BRC reported U.K. retailers expect 2010 to be a
difficult year but donâ€™t expect sales to fall from 2009 levels. Sterling liquidity was very light with Commonwealth
and some European markets closed for the Boxing Day holiday. Cable is now up about thirteen big figures on
a year-to-date basis. Many traders
believe Bank of Englandâ€™s Monetary Policy Committee will keep monetary policy
unchanged until at least February when fourth quarter gross domestic product
data are available along with the latest quarterly inflation forecast. Cable bids are cited around the US$ 1.5755
level. The euro moved lower vis-Ă -vis the British pound as cable tested bids
around the â‚¤0.8980 level and was capped around the â‚¤0.9020 level.
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