Thursday April 21, 2005 - 13:35:36 GMT
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Forex Market Commentary and Analysis (21 April 2005)
The euro came off modestly vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3055 level and was capped around the $1.3110 level. Notably, the common currency stopped just short of testing technical resistance around the $1.3120 level and gave back around half of yesterday’s gains. Traders await congressional testimony from Fed Chairman Greenspan today. Greenspan is scheduled to speak about “Structural Deficits and Budget Process Reform” and his comments will be scrutinized for any implications regarding the value of the dollar. In other Fed news, the monthly Beige Book was released yesterday and it reported that many regions of the U.S. experienced growing price pressures between late February and early April. Dealers anticipate a 25bps monetary tightening to be announced by the Federal Open Market Committee on 3 May despite stronger-than-expected core March consumer price inflation data that were released yesterday. The Philadelphia Fed survey will be released later in the U.S. session and will provide the latest evidence on how the manufacturing sector is faring in that region. If last week’s New York Fed Empire Survey is a proxy, the Philadelphia Fed survey could have weakened substantially. Data released in the U.S. today saw weekly initial jobless claims print at +296,000, down 36,000 from last week’s revised 332,000 number. Many economists continue to talk about the current “soft patch” in the U.S. economy and with the price of oil up above the $53.00/ barrel level again, energy costs continue to be cited as a culprit. The yield on the 10-year U.S. Treasury note now stands around 4.26%, down some 40bps in recent weeks and this is the strongest indication that trades believe the U.S. economy has softened. In eurozone news, French household consumption of manufactured goods receded 0.8% m/m in March and rose 4.0% y/y. European Union official Alumnia was critical of the eurozone today in saying a growth rate of 2% in 2005 would be insufficient. Euro bids are cited around the $1.3040 level and euro offers are seen around the $1.3120 level.
The yen reversed course and depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥107.40 level after Australasian dealers kept the pair supported around the ¥106.70 level. Technically, today’s high represents a 38.2% retracement of the recent ¥108.85 - ¥106.60 range and chartists cite ¥107.70 as the pair’s next upside target. Data released in Japan today saw the March trade surplus rise 13.4% m/m and fall 0.2% y/y. Notably, Japan’s merchandise trade surplus escalated to its strongest level in five years in the fiscal year that ended in March. Exports to Asia soared and China replaced the U.S. as Japan’s largest trading partner. The trade surplus expanded 1.3% y/y to ¥11.35 trillion, the fourth consecutive annual expansion. Exports to mainland China rocketed 16.1% to ¥8.087 trillion while imports surged 17.9% to ¥10.63 trillion. Notably, Japan and China are engaged in a significant and highly public row now that has led to the worst anti-Japan demonstrations in China since at least 1972. Trades are curious whether or not this will lead to a deterioration in Japan’s trade with China. The ongoing global inventory shakeout in information technology will also likely have an impact on Japan’s annualized trade results for the current fiscal year. Other data released in Japan today saw foreign investor emerge as net sellers of ¥125.8 billion in Japanese equities last week, the second week this year that foreign investors dumped shares. Former Bank of Japan Deputy Governor Yamaguchi said the central bank’s monetary policy will “normalize” as the economy recovers. Today, the central bank reported regional economies are in a “modest recovery trend,” an observation that was repeated by BoJ Governor Fukui in remarks today. The Nikkei 225 stock index shed 0.94% to close at ¥10,984.39. Dollar offers are cited around the ¥107.45/ 70/ 95 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥140.40 level and was supported around the ¥139.70 level. Stops were reached above the ¥140.10 level during the move higher. In Chinese news, it is being reported that Chinese and Japanese leaders could hold a summit in Jakarta to try and reduce recent tensions. Data released in China today saw March CPI up 2.7% y/y while March wholesale prices were up 3.5% y/y and March unemployment came in at 4.2%. The discount on the 12-month non-deliverable yuan forward eased to -4050/-3850 from -4300/-4200, signifying a slight pullback in revaluation estimates by traders.
The British pound tumbled sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9060 level and was capped around the $1.9215 level. An unexpected decline in March retail sales of 0.1% m/m was behind the pullback in sterling. Traders reduced sterling exposure as they began to price in less of a chance that Bank of England’s Monetary Policy Committee will raise interest rates in May, primarily on account of the reduction in consumption and final private demand. Tomorrow’s Q1 GDP data become critical and many dealers believe a print below 0.6% - the “trend rate of growth” – will nearly eliminate the possibility of a tightening next month. An increase of 0.4% in retail sales had been expected and on an annualized basis, the actual March print was only up 2.7% - the lowest print since August 2003. The MPC has not raised interest rates since August 2004 but has recently been concerned with the inflationary repercussions of above-trend economic growth and the relatively tight labour market. Cable bids are cited around the $1.9025 level while cable offers are seen around the $1.9130 level. The euro moved higher vis-à-vis the British pound today as the single currency tested offers around the ₤0.6855 level and was supported around the ₤0.6810 level.
The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1815 level and was supported around the CHF 1.1740 level. The pair did not wander far past the CHF 1.1750 level – an important short-term technical support level that represents 38.2% of the recent CHF 1.1480 – CHF 1.2195 range. Dollar offers are cited around the CHF 1.1835 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5440 level and was supported around the CHF 1.5390 level.
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