Wednesday May 26, 2004 - 15:18:25 GMT
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GCI Financial - www.gcitrading.com
Daily Market Commentary and Analysis (26 May 2004)
The euro was marginally stronger vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2145 level before sliding back to the $1.2100 figure. The pair was last at this level on 7 May when traders took the pair to that level after the release of the April non-farm payrolls data before dropping it below the $1.2000 figure. Traders kept the pair bid above the $1.2080 level overnight and the market is now in need of fresh conviction one way or another. Asian accounts were seen selling the pair at the daily high. Options traders cite a major option barrier around the $1.2190 level and indicated good recent demand for three-month euro calls with higher strike levels. Surprisingly, the dollar did not weaken dramatically after the release of relatively weak U.S. economic data today. It was reported that April durable goods orders sank 2.9% with the ex-transportation sub-index off 2.1%. Also, April new home sales were off 11.8% to 1.093 million units, the largest drop in some ten years. Eurozone officials reported Ecofin finance ministers will discuss the high price of oil next Tuesday when ministers convene in Luxembourg. ECB President Trichet said the price spike has not changed the ECB’s monetary policy stance and added the central bank has no current bias. ECB official Liebscher today said there is “increasing grounds for concerns” over excess fiscal deficits. Data released in the eurozone today saw EMU-12 March industrial new orders climb 1.5% m/m and +12.1% y/y while the combined direct/ portfolio investment measure registered a net outflow of € 23.9 billion in March, an acute transition from the €27.7 billion inflow in February. Fitch today reaffirmed its AA rating of Italy’s long-term foreign currency and local currency ratings but wanted of pending fiscal problems. Euro bids are cited around the $1.2080/70/55 levels with stops below the $1.2050 level.
The yen gained marginal ground vis-à-vis the U.S. dollar today as the greenback failed to get above the ¥111.95 level and tested bids around the ¥111.25 level during European dealing. Some dealers reported dollar-buying by Japanese accounts in relation to the U.S. Treasury’s two-year US$ 25 billion Treasury note auction. Liquidity was thin during Australasian dealing even though the Nikkei 225 share index moved higher. Stops were hit below the ¥111.60 level during the move lower and bids around the ¥111.35 level were later absorbed. The arrest of Al Qaeda-related suspects in Tokyo today did little to benefit the yen. Data released in Japan today saw the April trade surplus up 30.3% y/y as exports climbed 10.8% y/y. Interestingly, the trade surplus with the U.S. was off 2.4% y/y. Also, Japan’s corporate service prices index came off 0.6% y/y in April. Many chartists are suggesting the pair’s bearish tone will remain unless the dollar is able to sustain a break above the ¥112.00 figure. Dollar offers are seen around the ¥112.00/40 levels. The euro weakened vis-à-vis the yen today as the single currency tested bids around the ¥134.85 level, extending it’s recent downturn. Stops are cited below the ¥134.80 level with euro bids around the ¥134.50 level and offers around the ¥135.50 level. In Chinese news, there was a media report today that several leading economists are calling on the government to abandon its peg to the US$ and peg the yuan to a basket of currencies.
The British pound extended recent gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8200 figure and found good demand around the $1.8095 level. Sterling probably would have been stronger if U.K. GDP data met or exceeded expectations but instead Q1 GDP came in at 0.6% m/m and 3.0% y/y. These data suggest the Bank of England’s latest forecast for economic growth might have been overoptimistic and raises some doubts about the likelihood of additional monetary contraction by the BoE’s MPC in June. Stops were triggered above the $1.8160 level. Cable stops are cited below the $1.8080 level. The euro extended recent losses vis-à-vis the British pound today as the single currency tested bids around the £0.6660 level after failing to get above the £0.6690 level. Euro bids are cited around the £0.6650 level and fresh euro offers are seen around the £0.6690/ 0.6710 levels.
The Swiss franc gained some ground vis-à-vis the U.S. dollar today but the greenback battled back and tested offers around the CHF 1.2725 level during North American dealing. The pair got as low as the CHF 1.2655 level during European dealing before starting its upswing. Data released in Switzerland today saw the May KOF leading indicator at 0.95 from a revised 0.85 in April. This suggests there will be an improvement in the Swiss economy in H2 2004. Swiss National Bank added one-week liquidity at 0.11% today, the same rate it has used since 2 April 2003. The euro spiked 50 points lower during European dealing but found some bids around the CHF 1.5360 level.
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