Thursday March 24, 2005 - 14:07:55 GMT
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Forex Market Commentary and Analysis (24 March 2005)
The euro was little-changed vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3030 level and tested bids around the US$ 1.2965 level. The pair has thus far stopped short of testing major technical support seen around the $1.2950/ 45 level. Data released in the U.S. today saw February durable goods orders up +0.3% - less than expected – while the ex-transportation number printed at -0.2%. There were revisions to January’s durable goods orders that saw the headline number revised from -1.3% to -1.1% while the ex-transportation number climbed from +0.3% to +0.9%, a strong gain. Other data released today saw weekly initial jobless claims gain +3,000 to 324,000 while continuing jobless claims printed at 2.67 million. The dollar’s recent gains have largely been precipitated by a more hawkish Federal Open Market Committee statement on Tuesday and increase producer and consumer inflation. Liquidity was said to be reduced today on account of the Easter holiday weekend and many players will be on the sidelines through Tuesday when London returns to the market. Data released in the eurozone today saw German February import prices up 0.8% m/m and 3.7% y/y, stoking inflation fears in the eurozone’s largest – and one of its weakest – economies. Data released in Italy saw the March manufacturing confidence index come in around 85.0, down from February’s 86.6 level. The Bush administration has named Timothy Adams to become the new undersecretary for international affairs, replacing famed economist Jon Taylor in the middle of next month. Adams will likely become the U.S. government’s point man on currencies but is unlikely to deviate much from FX playbook of quietly encouraging a weaker dollar. Technicians are citing some short-term resistance around the $1.3005/ 20/ 35 levels. Euro bids are cited around the $1.2955/ 35 levels and also around the $1.2710 level.
The yen extended recent losses vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥106.55 level and was supported around the ¥105.90 level. Today’s high represented the pair’s strongest print since 10 February’s spike and absent that day, since 12 November 2004. Traders are already talking about the release of Bank of Japan’s quarterly tankan survey on Friday, 1 April and early forecasts suggest there will be a minor improvement over December’s tankan survey. A Nikkei poll suggests the January diffusion index for major manufacturers will come in around 23. Data released in Japan overnight saw the January tertiary index up 2.2% m/m while the all-industries index was up 2.4%. Also, large firms’ business conditions index receded 0.6% in the January to March period. Information technology inventory adjustments and escalating crude oil prices contributed to the weakening corporate sector activity. Other data released overnight saw February department store sales off 7.0% y/y – the eleventh decline in twelve months. The Nikkei 225 stock index climbed 0.06% to close at ¥11,745.97. Dollar offers are cited around the ¥106.75 level. The euro retraced some recent losses vis-à-vis the yen as the single currency tested offers around the ¥138.50 level and was supported around the ¥137.50 level. Euro offers remain seen around the ¥138.25 level. The British pound gained ground and tested offers around the ¥199.30 level while the Swiss franc moved higher and tested offers around the ¥89.15 level. In Chinese news, the State Administration of Foreign Exchange (SAFE) called on G7 countries to maintain the global economy more efficiently. SAFE specifically said the U.S. has taken steps to reduce its trade and fiscal deficits. In another report, SAFE said China’s foreign exchange reserves “may see some changes.” The Chinese government today reported that direct investment in Beijing’s 2008 Olympic Games will increase GDP by an average 2.07% annually until that year. People’s Bank of China today reiterated it will continue with a “prudent” monetary policy and maintain the yuan’s stability. A National Bureau of Statistics official today warned that heightened raw material prices may engender inflation, naming coal, metals, and crude oil as inflationary inputs. Many China-watchers believe PBOC will be forced to tighten monetary policy again this year.
The British pound gained some ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8740 level and was supported around the $1.8770 level. Strong sterling bids continue to be cited around the $1.8645 level. Cable moved higher following the weaker-than-expected U.S. durable goods numbers in early North American dealing. Bank of England Governor King today said he has no reason to believe Chancellor Brown’s “golden rule” on spending will not be met. The so-called golden rule requires the government to balance its current budget, excluding investment, during the current economic cycle. King suggested there is “no reason to panic” over oil prices but cited consumer spending as a possible near-term downside risk to the central bank’s inflation forecast. King also cited labour costs as another major uncertainty in the latest inflation forecast. King said demand pressure on supply capacity has also been creating inflation at the factory gate level along with the price of oil. Monetary Policy Committee member Tucker, who voted in the minority to hike rates this month, today said a “mild tweak” is required in U.K. interest rates to correct excessive demand levels. In contrast, MPC member Bell said there is sufficient supply capacity in the economy hence a rise in rates is not required. Sterling bids are seen around the $1.8645 and $1.8515 levels. The euro fell vis-à-vis the British pound as the single currency tested bids around the ₤0.6935 level.
The Swiss franc was little-changed vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.8740 level and tested bids around the $1.8670 level. There are not any fundamental Swiss news events scheduled before next week. Technically, the pair is currently trading between CHF 1.1890 and 1.2031, the 38.2% and 23.6% retracement levels of the 2005 range, respectively. Dollar offers are cited around the CHF 1.2020/ 25 levels. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5545 level while the British pound gained ground vis-à-vis the Swiss franc and tested offers around the CHF 2.2395 level.
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