Monday March 7, 2005 - 09:13:30 GMT
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FX Daily Technical Strategy
Dollar stalls after U.S. jobs effect wanes
The dollar sat tight on Monday, after it slipped on U.S. jobs figures that, although healthy, did not point to interest rates rising at a faster pace as some investors had hoped.
The currency's failure to gain on the upbeat employment data suggested to dollar bears that it was poised to weaken, while others saw its fall as a position adjustment that had set the stage for a rebound.
As of 05h55 GMT, the euro was little changed at $1.3230, after rising around 1 percent on Friday.
The dollar was also flat at 104.80 yen.
The market may pay attention to rising U.S. interest rates and buy the dollar in the end, but it could shift focus back to the U.S. current account deficit. We can't tell at the moment.
The yen's rise was seen capped by a healthy appetite for foreign securities particularly U.S. assets from Japanese investors ahead of the end of the blanket state guarantee on deposits at the end of March.
But that was seen offsetting the usual yen-buying that occurs when Japanese companies repatriate profits ahead of the March 31 book-closing.
The yen showed a muted response to data showing capital spending by Japanese firms slowed in the final quarter of 2004.
Meanwhile, the New Zealand dollar gained on the back of the U.S. dollar's retreat, rising to a fresh 22-year high of 73.67 U.S. cents in offshore trading, before falling back to around 73.30 cents.
Data on Friday showed U.S. non-farm payrolls rose by 262,000 in February, well above a Reuters forecast for 220,000 and the biggest gain in four months.
There was nothing in the jobs data to imply that the Fed would accelerate its tightening speed, and it seemed to confirm that the Fed would keep raising rates steadily by 25 basis points through the year.
The Federal Reserve has raised its target federal funds rate by a quarter percentage point at six successive meetings since last June to take it to 2.5 percent.
Fed policy makers will next meet on March 22, when another quarter point increase is expected.
Fed governor Ben Bernanke will comment on Tuesday on the economic outlook, while Fed Chairman Alan Greenspan will speak on Thursday and Friday.
Traders brushed aside comments by China's foreign exchange chief, Guo Shuqing, who said that a revaluation of the yuan would be unfavorable to both the domestic and global economies, although the country would eventually let the currency float freely. He did not specify a timeframe.
The United States has complained that yuan's peg of 8.28 to the dollar is too low and gives China an unfair trade advantage. China-related comments had swayed currency markets sharply late last year through January.
EURO/DOLLAR: The euro concluded Friday's session leaving a solid bullish candlestick formation after holding 1.3090 supports on the third attempt the same day.
Overbought situation on intraday charts is restricting gains beyond $1.3250/60 for now risking a dip to 1.3210 with more room to $1.3170/60 support band. Once the corrective drive is over a fresh leg higher to $1.3280/90 is in store, which is the recent high. A robust rally above this recent high would target an array of resistance between $1.332010/40 band. Only a breakout of the latter resistance band would trigger further sharp advance to $1.3440/70 barriers. Otherwise, we are going to trade in $1.3290-1.3090 range during the week.
STERLING/DOLLAR: Cable recorded a strong rally Friday rejecting the upbeat employment numbers from the U.S. offering an additional upside room during the week.
Having said that, intraday charts are showing overbought conditions and are not going to allow a significant move higher before neutralizing overbought readings. A key support on hourly charts is $1.9200 and a decisive move below this level would attest the corrective drive heading to $1.9170/50 mark before initiating a fresh leg higher to $1.9300 logical resistance. The pair is trading inside a rising channel on daily charts facing an immediate resistance at $1.9260, additional at $1.9430 and the base is holding at $1.9070 mark.
@20h00 GMT: Consumer Credit for January.
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