Monday April 11, 2005 - 13:31:36 GMT
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Forex Market Commentary and Analysis (11 April 2005)
The euro appreciated modestly vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2985 level and remained supported above the $1.2905 level. Traders readied themselves for tomorrow’s U.S. February trade data and Federal Open Market Committee meeting minutes. The trade data are important in the context of Friday’s Treasury International Capital data report that will confirm whether or not the U.S. covered its likely February trade balance with international capital portfolio flows. Traders have largely focused on pro-U.S. dollar cyclical factors like economic and productivity growth thus far in 2005 and a shift to a focus on the U.S.’s large structural imbalances could see the common currency try to regain a firm footing above the psychologically-important $1.3000 figure. Tomorrow’s FOMC minutes will be scrutinized for any clues that suggest policymakers discussed the need for an eventual 50bps monetary tightening when they last convened. In eurozone news, European Central Bank policymaker Mersch today said there is an increasing change that high oil prices could have second-round effects in the eurozone economy, possibly leading to higher interest rates. Data released in the eurozone today saw French February manufacturing output fall 1.0% m/m following January’s +0.3% rise, below most forecasts, while Germany’s DIW revised its Q1 GDP forecast to +0.7% y/y from +0.5%. Eurozone finance ministers are meeting today and tomorrow and are said to be discussing exchange rates and the price of oil. They will meet their G7 counterparts late this week in Washington, D.C. to discuss the global economy. In German news, the government is considering a new minimum wage plan to support certain segments of the domestic economy. It was also reported that German tax revenue could be around € 7 billion short of November estimates on account of slower economic growth. Euro bids are seen around the $1.2935 level while euro offers are cited around the $1.3085 level.
The yen reversed its recent misfortunes vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.65 level and was capped around the ¥108.50 level. Stops were triggered below the ¥108.20/ ¥107.90 levels during the move downward as they represent key long-term technical support levels that have largely supported the pair over the past several trading sessions. The dollar gained a little ground during Australasian dealing on comments from Bank of Korea Governor Park who said his central bank will not diversify its foreign exchange reserves from the U.S. dollar at this time on account of the won’s steep rise. Traders bought some additional dollars overnight when a fairly strong earthquake struck around the Tokyo area but bought back yen when it was reported there was no significant damage. Data released in Japan today saw the February current account surplus recede 1.5% y/y to ¥2.117 trillion, primarily on account of slower exports. Likewise, the trade surplus receded 20.3% y/y to ¥1.235 trillion. These data are the latest evidence that Japan’s economy is suffering from the global inventory adjustment in the information technology sector. Futures traders cite some downside risk for the dollar as speculative IMM yen futures have their largest net short yet positions since January 2001. Options traders cite a large ¥108.00 run-off at 1400 GMT today. The Nikkei 225 stock index shed 1.09% to close at ¥11,745.64. Dollar bids are seen around the ¥107.60 level and dollar offers are seen around the ¥109.00 figure. The euro moved marginally lower vis-à-vis the yen as the single currency tested offers around the ¥139.70 level and was capped around the ¥140.25 level while the British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥203.45 level. Some €20 billion in eurozone debt offerings are expected this week and this could affect the crosses. In Chinese news, it was reported that China’s Q1 exports expanded 34.9% while imports were up 12.2%. Also, industrial output was up 16.2% y/y in Q1 to ¥1.44 trillion. A Chinese economist today suggested China will not be prepared to revalue the yuan currency in the next six months but added a revaluation could come before the end of 2005. He also suggested the creation and functioning of a liquid onshore foreign exchange market is a prerequisite before a revaluation takes place. He predicted a revaluation of 3% might be proper. In other Chinese news, Credit Suisse First Boston reported China’s foreign exchange reserves may exceed US$ 1 trillion by 2008.
The British pound added to its turnaround from Friday vis-à-vis the U.S. dollar today as cable moved above offers seen around the US$ 1.8860/ 85 levels and was supported around the $1.8610 level. Chartists now cite the $1.8940/45 level as the pair’s next significant hurdle. Data released in the U.K. today saw March producer output prices up +0.6% m/m and +2.8% y/y while core producer output prices were up +0.1% m/m and 2.4% y/y. March producer input prices were up +1.8% m/m and +11.5% y/y. IDS today reported U.K. pay pressures are probably rising as Q1 pay deals are printing 3.3% higher than year-ago levels, on average. If anything, this may nudge up interest rate expectations at Bank of England but is probably not enough to effect a monetary tightening at the May meeting of the Monetary Policy Committee. Prime Minister Blair today said the U.K.’s five tests for Economic and Monetary Union are still valid. Property website propertyfinder.com today suggested the forthcoming general election and likelihood of higher U.K. interest rates are deterring would-be homebuyers from purchasing real estate. Sterling bids are seen around the $1.8860 level. The euro was little-changed vis-à-vis the British pound as the single currency tested bids around the ₤0.6850 level and was capped around the ₤0.6865 level.
The Swiss franc moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1925 level and was capped around the CHF 1.1990 level, below the psychologically-important CHF 1.2000 figure. The pair has been in a downturn for the past five trading sessions and chartists cite the CHF 1.1875/ 60 levels as the next significant support for the pair. Swiss February retail sales will be released tomorrow. Dollar offers are seen around the CHF 1.2010/ 40 levels. The euro was little changed vis-à-vis the Swiss franc as the single currency tested offers just below the CHF 1.5500 figure.
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