Tuesday April 12, 2005 - 14:43:26 GMT
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Forex Market Commentary and Analysis (12 April 2005)
The euro reversed course and plunged vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2875 level after failing to get above the $1.3015 levels. The market appears to have been short U.S. dollars heading into the crucial U.S. February trade number that evidenced an all-time high monthly trade imbalance in the U.S. of US$ 61.04 billion. A surge in the value of oil imports caused the deficit to rise 4.3% m/m and the US$ 2.58 billion increase in imports easily overshadowed the US$ 50 million rise in exports. The dollar’s reaction to the data suggests traders have not yen given up the ghost on cyclical factors like positive U.S. economic growth and productivity relative to the eurozone. Structural issues like the U.S.’s mammoth trade, fiscal, and current account deficits are not at the forefront of traders’ minds now as market participants are clearly focusing on the relative outperformance of the U.S. economy. February Treasury International Capital data will be released on Friday and traders will see if international portfolio flows were sufficient to cover the significant trade deficit two months ago. Another item that is supporting the U.S. dollar is this afternoon’s release of Federal Open Market Committee meeting minutes from the Fed’s 22 March policymaking meeting. Dealers are curious to see how hawkish Fed officials were when they convened a couple of weeks ago. There is a sense that the Fed may have discussed the need of tightening policy by as much as 50bps when they last convened. EU President Juncker today said soaring oil prices are “beginning to weigh rather heavily” on the eurozone’s chances of obtaining sustainable economic growth. Data released in the eurozone today saw France’s February trade balance print at -€1.517 billion, worse than the original deficit of €1.223 billion. Also, the German wholesale price index was up 0.8% m/m and 3.3% y/y. Juncker also said he will repeat the language he used regarding exchange rates when G7 policymakers convene later this week. In February, Juncker characterized excessive exchange rate movements as “undesirable” and he last night said some movements are “not healthy.” Euro bids are cited around the $1.2800 figure and euro offers are seen around the $1.3085 level.
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.45 level and remained supported around the ¥107.50 level. The pair reclaimed the technically-significant ¥108.30 level and hit some stops above the ¥108.35 level during North American dealing. Data released in Japan overnight saw March bank lending off 3.0% y/y, the 87th consecutive monthly decline. Also, the March M2+CD money supply was up 2.1% y/y after February’s 1.9% rise. Traders are talking about a downward revision to January – March GDP forecasts for Japan from a group of 38 private-sector economists. Annualized economic growth is now expected to have expanded 1.74% during the first three months pf the year, down from 1.94% in last month’s forecasts. Finance minister Tanigaki today said G7 central bankers and finance ministers will discuss the effects of higher oil prices when they convene in Washington, D.C. later this week but added he does not expect policymakers “will have discussions that would change the previous stance on foreign exchange.” Options traders are reporting the ¥107.50 level held today on account of options-related bids. The Nikkei 225 stock index shed 0.64% to close at ¥11,670.30. Dollar offers are cited around the ¥109.35 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥139.55 level and was capped around the ¥140.00 figure. Euro offers are seen around the ¥140.25 level and euro bids are cited around the ¥139.40 level. Options traders cite a ¥140.25 expiry at 1400 GMT today. In Chinese news, it was reported that Chinese actual foreign direct investment expanded 9.48% y/y in Q1 to US$ 13.39 billion. In 2004, China enjoyed US$ 60.63 billion in actual foreign direct investment – more than 25% of its US$ 206 billion net foreign exchange inflow. German finance minister Eichel today called for “more currency flexibility” from Asian countries while EU President Juncker said some Asian countries need to take measures “because the eurozone should not be the only zone to take the weight of (exchange rate) adjustment.”
The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8835 level and was capped around the $1.8975 level. Sterling hit stops below the $1.8945, $1.8885, and $1.8860 levels during its downturn. BRC today reported that like-for-like sales grew 1.8% y/y in March, significantly above expectations and above February’s -0.3% print. Sterling’s turnaround after two days of solid gains was precipitated by traders’ surprising reaction to the U.S. record trade deficit data. Traders await the release of tomorrow’s employment and average earnings data tomorrow. Cable bids are seen around the $1.8815 level and cable offers are seen around the $1.8950 level. The euro weakened vis-à-vis the British pound as the single currency tested bids around the ₤0.6830 level and was capped around the ₤0.6865 level. Euro bids are cited around the ₤0.6820 level.
The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2045 level after briefly testing bids below the CHF 1.1900 figure. The pair raced to technical resistance around the CHF 1.2040 level after blowing through stops above the CHF 1.1980 and CHF 1.2010 levels. Data released in Switzerland today saw February retail sales decline 1.6% y/y. Dollar offers are cited around the CHF 1.2085 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5510 level and was supported around the CHF 1.5475 level.
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