Tuesday March 15, 2005 - 16:00:32 GMT
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Forex Market Commentary and Analysis (15 March 2005)
The euro was driven to daily lows vis-à-vis the U.S. dollar today after the release of a much stronger-than-expected January Treasury International Capital report that showed foreign portfolio inflows into the U.S. more than covered the January trade deficit of US$ 58.3 billion – the second largest ever. Portfolio inflows printed at US$ 91.5 billion, the largest number since May 2003 and the second largest on record. Dealers were concerned the U.S. would be unable to cover the mammoth trade deficit but these TIC data alleviated this concern for another month. Foreigners upped their purchases of Treasury bonds, notes, and U.S. government agency bonds and reduced their purchases of U.S. corporate bonds in January. Traders hit stops below the $1.3330 level after the data were released and technical analysts were again spotlighting technical support around the $1.3305/ $1.3290 levels. Other minor data released in the U.S. today saw U.S. retail same-store sales rise 0.6% w/w. It was also earlier reported that U.S. headline February retail sales gained +0.5% while the ex-autos number came in at +0.4%. Also, the New York Fed’s Empire survey printed at 19.6, in-line with expectations. Traders are paying attention to testimony from Fed Chairman Greenspan today regarding Social Security. Data released in Germany today saw an unanticipated improvement in German investor confidence as the ZEW research institute’s expectations indicator moved to 36.3 in February from 35.9, its best reading since September. Bundesbank President and ECB member Weber today said inflationary risks are low but added excess liquidity could pose problems for price stability in the future. Regarding FX, Weber added he was “not ruling out a further depreciation of the dollar.” Other data released today saw EMU-12 Q4 labour costs up 2.2% y/y, above estimates of a 1.9% climb. French data released today final February consumer prices rise 0.5% m/m and 1.6% y/y. Belgian finance minister Reynders cautioned finance ministers against tinkering with the EU Stability and Growth Pact, warning the “credibility of the eurozone would be at risk.” ECB President Trichet yesterday said the ECB is poised to raise rates “without hesitation” if circumstances warrant but said the current levels of rates is “appropriate.” San Francisco President Yellen last night said the U.S. economy is on “firmer footing.” Euro bids are cited around the $1.3305/ $1.3290 levels.
The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥104.20 level, a key technical level associated with a 50% retracement of the U.S. dollar’s 2005 correction. The pair was capped around the ¥105.00 figure, unable to stray far from the ¥104.90/ 85 level, another retracement area. Economy minister Takenaka spoke guardedly about yesterday’s upward revision to October – December GDP, saying “There is no change in our judgment that Japan's economy is in an adjustment phase. It is necessary to closely watch the development of the inventory in the IT (information technology) sector, as well as the development of exports, which is slowing.” The government’s announcement technically means Japan is not in a recession, but traders remain skeptical and want to see more positive data from Japan, including a deceleration in deflationary pressures. Bank of Japan is expected to upgrade its assessment of the economy for the first time in several months tomorrow when it releases its monthly report. Data released in Japan overnight saw household financial assets rise 1.5% in 2004 to a record ¥1.42 trillion. A government body called Economic Planning Association (EPA) released a report overnight that predicts the economy will have grown a real 1.59% in the fiscal year that ends in a couple of weeks. Other data released overnight saw small firms’ business sentiment improve moderately in February. The Nikkei 225 stock index shed 0.25% to close at ¥11,821.09. Dollar bids are cited around the ¥104.25 level and dollar offers are seen around the ¥104.90/ ¥105.60 levels. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥139.40 level and was capped around the ¥140.30 level while the British pound erased most of its gains and traded at an intraday low around the ¥200.10 level. In Chinese news, data released today saw January-February industrial output up 16.9% y/y. The IMF today said China is “technically” ready to move its currency peg now and said politics remains the only hurdle to making that change. Bank of China today announced it will become the country’s first foreign exchange market-maker after executing an agreement with China Foreign Exchange Trade Center. Also, an agreement between Japan and China was announced today that permits Japan to stop offering China yen loans as of March 2008, a program first offered in March 1981.
The British pound pared some of its gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9255 level before moving back to the $1.9155 level during North American dealing. Sterling was supported at the $1.9110 support level today, a 23.6% retracement of its move from $1.7680 to $1.9550. Cable’s retracement coincided with the much stronger-than-expected U.S. TIC number. Data released in the U.K. today saw RICS report a decrease in house prices and a solid increase in the number of properties on the market to a two-year high. Cable bids are seen around the $1.9110 level. The euro lost ground vis-à-vis the British pound as the single currency tested bids around the ₤0.6945 level after the cross stalled just below the ₤0.6990 level.
The Swiss franc lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1660 level and was supported around the CHF 1.1560 level. The daily high coincided with a move back to the 61.8% retracement of the 2005 range and technical analysts cite additional dollar resistance around the CHF 1.1705/55/ 80 levels. Swiss National Bank’s quarterly interest rate announcement is expected on Thursday and SNB President Roth is also expected to talk this week. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5525 level and the British pound rose sharply to test offers around the CHF 2.2335 level.
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