Thursday April 14, 2005 - 12:59:59 GMT
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Forex Market Commentary and Analysis (14 April 2005)
The euro fell sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2815 level and appeared set to challenge bids around the $1.2800 figure. Many traders are confounded by the dollar’s strength now as this week’s U.S. trade deficit and retail sales data were not dollar-positive from economic and structural standpoints. The Federal Open Market Committee meeting minutes did little to change the perception the Fed will continue to tighten monetary policy at a “measured” pace. Traders are preparing for tomorrow’s February Treasury International Capital data to determine if international portfolio flows covered the U.S. trade deficit two months ago. Most forecasts are expecting to see some US$ 65 billion in foreign capital inflows, down from January’s unusually-high US$ 91.5 billion in inflows, but likely enough to cover the February trade deficit. There are strong rumours in the market that part of the euro’s misfortunes now are linked to famed U.S. investor Warren Buffett’s trades wherein he is said to be closing long euro positions and netting hundreds of millions of dollars in profit. A report issued by the International Monetary Fund last night is also contributing to the dollar’s strength as the IMF is forecasting the U.S. will outperform the eurozone’s and Japan’s economies this year. U.S. interest rates are higher than those in the eurozone and Japan thus the dollar continues to be supported by positive interest rate differentials and cyclical growth differentials. Fed Governor Bernanke is due to speak about the U.S. current account deficit data today and his remarks will closely be monitored. Data released in the U.S. today saw weekly initial jobless claims fall 10,000 to 330,000 while February business inventories were up +0.5%, as expected. In eurozone news, German finance minister Eichel reported high oil prices are a risk for the German and global economies while Bank of France reported Q2 French GDP should grow around 0.5%. In other French news, a new poll is reporting that 55% of French respondents do not favour adoption of an EU constitution. A vote will be taken on 29 May and traders may see the failure to reach a pan-European consensus as a failure to complement Economic and Monetary Union with a political dimension. Other data released today saw EMU-12 Q4 FDP up 0.2% q/q and forecasts for Q1 and Q2 economic growth were left unchanged. Also, Italian March CPI was reported up 0.3% m/m and 1.9% y/y. The European Central Bank released its April monthly bulletin today and predicts “moderate economic growth” will continue but adds “persistently high oil prices in particular pose downside risks to growth.” ECB chief economist Issing last night said the ECB’s current monetary policy is “very accommodating.” Euro bids are seen around the $1.2800 figure and $1.2710 level.
The yen lost significant ground vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.15 level, a short-term technical support level related to the recent ¥108.85 – 107.50 range. Technically, the ¥108.30 level is the pair’s next hurdle and if paid, opens up the ¥109.30/ ¥109.85 levels in what would be a move to multi-month highs. Australasian dealers were only able to take the pair down to the ¥107.25 level before bids surfaced to move the pair firmly above the ¥107.50 level. Data released in Japan overnight saw March bankruptcies off 14.2% y/y while corporate failures were down 18.1% y/y. Capital flows data released overnight saw Japanese investors buy a net ¥1.03 trillion of foreign bonds and stocks in the week ending 9 April, the first full week of Japan’s fiscal year. Foreign investors purchased ¥680.7 billion of JGBs and ¥303.7 billion of Japanese equities last week. All eyes are on Washington, D.C. over the next couple of days as Japanese policymakers have promised an extensive G7 dialogue about oil prices. Most market participants do not expect the G7 to talk about foreign exchange in detail but it is probable the U.S. and Europe will renew their calls for ex-Japan Asia to promote flexible exchange rate regimes. Option traders cite run-offs at ¥108.00, ¥107.80, ¥107.50, and ¥107.00 at the New York cut today. The Nikkei 225 stock index came off 0.64% today to close at ¥11,563.17. Dollar bids are cited around the ¥107.30/ ¥106.90 levels while dollar offers are seen around the ¥108.30 level. The euro was little-changed vis-à-vis the yen as the single currency tested offers around the ¥138.90 level and was supported around the ¥138.35 level. In Chinese news, it was reported that China’s foreign exchange reserves came in at US$ 659.1 billion at the end of March, up around 49.9% y/y. The Chinese media reported China’s GDP expanded around 9% y/y n Q1, compared with a 9.7% growth during the same period last year. The same forecast concluded the “economy continued to develop in the direction guided by the government's macro-control and maintained a stable and fast growth.” Other data released today saw the final March M2 money supply up 14% y/y.
The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable receded to the US$ 1.8810 level after failing to get above the $1.8950 level during North American dealing. Today’s high represented the 50% retracement level of the move from $1.9235 to $1.8590 and chartists cite the $1.8785 level as the next target to the downside. BCC released a report today that predicts U.K. GDP will come in around 2.5% in 2005, lower than the 2004 growth rate of 3.1% and below Chancellor of the Exchequer Brown’s forecast of 3.0% to 3.5%. The BCC spotlighted the manufacturing and services sectors as potential problem areas for the economy. On the political front, a new poll suggest Prime Minister Blair’s narrow lead over the opposition Conservatives is widening ahead of next month’s general U.K. election. Option traders cite $1.8890 and $1.8950 run-offs at 1400 GMT today. Cable bids offers are seen around the $1.8885 level while cable bids are seen around the $1.8760 level. The euro moved marginally lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6805 level and was capped around the ₤0.6825 level. Euro bids are seen around the ₤0.6780/ 60 levels while euro offers are cited around the ₤0.6840 level.
The Swiss franc weakened substantially vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2135 level and remained supported around the CHF 1.1990 level. There was talk overnight of dollar buying by large Swiss name above the CHF 1.2000 figure and the pair is close to testing levels not traded since 10 February. Technically, a move above the CHF 1.2150 level opens up the CHF 1.2120 level and the CHF 1.2350 level. Dollar bids are cited around the CHF 1.1980 level. The euro moved sharply higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5550 level and was supported around the CHF 1.5490 level. The British pound moved higher vis-à-vis the Swiss franc as sterling tested offers around the CHF 2.2835 level.
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