Monday April 18, 2005 - 13:05:05 GMT
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Forex Market Commentary and Analysis (18 April 2005)
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2990 figure, stopping just short of testing the psychologically-important $1.3000 figure. Bids supported the common currency around the $1.2875 level. G7 central bankers and finance ministers convened in Washington, D.C. on the sidelines of the spring IMF and World Bank meetings and their communiqué did not yield any surprises. Policymakers repeated their mantra that “exchange rates should reflect economic fundamentals” and added “excess volatility and disorderly movements in exchange rates are undesirable for economic growth.” G7 officials took a veiled shot at China saying more flexibility is needed in “major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments.” Treasury Secretary Snow reported the U.S. economy remains strong despite the recent sell-off in U.S. equities and added he is committed to reducing the U.S. budget deficit. European Central Bank President Trichet ruled out a monetary easing by the ECB and said current interest rates are “appropriate.” Policymakers added that they see “solid growth” in 2005 but reported oil prices could hamper their activity. A major contentious issue was unresolved at the G7 and that involves debt relief to highly indebted poor countries and the manner in which such debt relief will be financed. There are no major data scheduled for release in the U.S. today but Fed Governor Bies will speak twice later during the U.S. session. PPI data will be released tomorrow followed by CPI data on Wednesday. In eurozone news, EMU-12 March HICP printed at an unrevised +2.1% y/y pace even though consumer prices were up 0.7% m/m last month after February’s +0.3% m/m rate. ECB member Wellink hawkishly said the ECB will “probably” react to the eurozone’s excess liquidity despite high oil prices while Germany’s Bundesbank reported Q1 GDP expanded “noticeably” from Q4 2004 on account of stronger net exports. Q1 GDP data are due on 13 May. The European Commission is now predicting Q1 GDP growth of 0.5%. In other eurozone news, the German government is said to be considering a reduction in its 2005 GDP forecast to 1.0% from 1.6%. Euro offers are cited around the $1.3015 level and euro bids are seen around the $1.2900 figure.
The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.40 level and was capped just above the ¥108.00 figure. The intraday high coincided with a 50% retracement of the pair’s recent move from ¥108.85 to ¥107.15 and the pair, which gapped lower at the open, ceded the 50 or so pips that Australasian dealers paid when they drove it higher. Bank of Japan Governor Fukui reiterated his plan to keep the central bank’s quantitative easing policy intact until Japan’s consumer price index stabilizes above zero per cent. He added Japan’s CPI is likely to keep falling on an annualized basis for some time and added Japan’s economy will strengthen from its current “soft patch” soon. The big news in Japan over the weekend involved China where citizens are engaging in massive anti-Japanese demonstrations. Sino-Japanese relations have deteriorated to the lowest levels in at least a generation and traders are looking to see if this will have an impact on the FX markets. OPEC President al-Sabah today said the cartel will increase oil production output by 500,000 barrels per day next month of account of increased demand. The bloodbath in global equities continued overnight as the Nikkei 225 stock index shed 3.80% to close at ¥10,938.44. Options traders report New York run-offs at ¥108.00 and ¥106.30 today. Dollar bids are cited around the ¥107.35/ 20 levels while dollar offers are seen around the ¥108.00/ 15 levels. The euro gained ground vis-à-vis the yen as the single currency tested offers around the ¥139.65 level and was supported around the ¥138.80 level. In Chinese news, Japan continues to seek an apology from China over this week’s strong anti-Japanese protests on the mainland and Prime Minister Koizumi is said to be seeking a meeting with China’s Hu. U.S. Treasury Secretary Snow reported China is “ready now” to adopt a more flexible exchange rate regime. U.S. legislators have no fewer than eight bills in front of them now that would punish China for not moving relatively fast to loosen its artificial peg to the U.S. dollar. In reaction, China’s State Council reported it will accelerate and deepen reforms of the country’s capital markets as first reported in February 2004 but did not elaborate on a time frame. Former European IMF official Larsen over the weekend said China should revalue its yuan currency by 25-30% to “counterbalance an unbalanced situation.”
The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9005 level and was supported around the $1.8885 level. Technically, the next target for sterling on the upside is $1.9025, the 50% retracement level of the move from $1.9295 to $1.8590. BRC reported like-for-like retail sales were up 0.01% y/y. On the political front, polls are reporting that Prime Minister Blair’s Labour Party has increased its nominal lead over the its Tory opposition ahead of next month’s general election. Blair also said the U.K. will hold a poll on ratification of the E.U. constitution even if France votes not in favour at the polls on 29 May. Cable offers are seen around the $1.9010 level and bids are cited around the $1.8950/ 20 levels. The euro was little-changed vis-à-vis the British pound as the single currency tested offers around the ₤0.6840 level and was supported around the ₤0.6810 level.
The Swiss franc moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1900 figure and was capped around the CHF 1.2040 level. Data released in Switzerland today saw the producer and import prices index rise 0.2% m/m in March and 1.4% y/y. Higher fuel prices largely contributed to the increase. Stops were hit below the CHF 1.1950 level. Dollar bids are seen around the CHF 1.1890 level. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5455 level and was capped around the CHF 1.5510 level.
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