Friday May 28, 2004 - 16:45:17 GMT
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GCI Financial - www.gcitrading.com
Daily Market Commentary and Analysis (28 May 2004)
The euro depreciated vis-à-vis the U.S. dollar today as traders squared positions ahead of the long holiday weekend in the U.S. and parts of Europe. The move lower was extended after the release of a mixed batch of U.S. economic data that saw April personal income increase +0.6% with personal consumption expenditures up +0.3%, as expected. Traders interpreted these data as a sign that consumer spending will continue to be relatively robust in the U.S. These data, however, were tempered by a weak final May University of Michigan consumer sentiment survey that saw a final reading of 90.2 compared with 94.2 at the end of April. These data likely reflect the financial and psychological effects that soaring oil and gasoline prices have had on the U.S. consumer. Following the release of these data, it was reported that U.S. May Chicago PMI came in at 68.0, displacing forecasts of a number lower than last month’s 63.9 reading. Another reason cited for the dollar’s move higher today is a report from unnamed Fed sources that the FOMC is growing increasingly concerned with mounting inflationary pressures and is more inclined to act preemptively than would have been the case months ago. This has led to one school of thought that suggests the Fed may lift the federal funds target rate to 1.25% next month even if the May non-farm payrolls data scheduled for release on 4 June is less-than-great. Data released in the eurozone today saw May EMU-12 flash HICP increase substantially to 2.5% y/y from 2.0% y/y in April. These data, if confirmed, make it highly unlikely the ECB will be easing monetary policy anytime soon. EMU-12 April M3 exceeded expectations with a 5.6% y/y increase and the EC’s economic sentiment index rose 0.1 index points in May. German import prices rose 0.5% m/m while plant and equipment orders surged 19% y/y. French May consumer sentiment receded while the French jobless rate remained steady at 9.8%. French April PPI was up +0.4% m/m and 1.3% y/y while Italian preliminary HICP was below expectations. ECB Chief Economist Issing today said the ECB should not be made the “scapegoat” for slower-than-desired EMU-12 economic growth while Bundesbank’s Remsperger said it is unrealistic to fine-tune the macroeconomy with short-term policy adjustments. Euro stops are cited below $1.2165 level.
The yen extended recent gains vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥110.35 level after failing to absorb offers around the ¥111.10 level. Liquidiy was reduced today on account of recent position-squaring ahead of the Monday holiday in the U.S. and much of Europe. Traders bought yen following the release of stronger-than-expected Japanese economic data that extended hopes of a sustainable economic recovery in Japan. Stops were triggered below the ¥110.55 level during the move lower and a strong wave of selling was seen when the pair reached the ¥111.05 level again during early North American dealing. There were reports that traders moved into yen on account of an MSCI global equity allocation rejig next week. Data released in Japan today saw April nationwide core CPI off 0.2% y/y with the Tokyo-area core CPI off 0.1% y/y. The April jobless rate remained unchanged at 4.7% and April wage-earner household spending was up 7.2% m/m and 9.3% y/y. Additionally, April industrial output was up a preliminary 3.3% m/m and April inventories were up 1.4% with METI predicting a solid 3.5% jump in May manufacturing output. Traders know that deflation will continue to be a persistent yet gradually minimizing blemish on Japan’s economy hence they were impressed by these other economic data. Finance minister Tanigaki reported Japan will continue to monitor long-term interest rates. The Nikkei 225 stock index climbed 1.29% on the heels of these stellar Japanese economic data to close at ¥11,309.57. Dollar bids are cited around the ¥110.35/00 levels as well as down around the ¥109.90 level. Dollar offers are seen around the ¥111.00/ 20 levels with stops seen above the ¥111.25 level. Additional dollar offers are seen around the ¥111.50 levels. The euro was sharply lower vis-à-vis the yen today as the single currency tested bids around the ¥134.90 level after encountering tough resistance around the ¥136.30 level. Stops are cited above the ¥136.50 level.
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