Tuesday April 26, 2005 - 14:12:27 GMT
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Forex Market Commentary and Analysis (26 April 2005)
The euro weakened vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2970 level and was capped around the $1.3015 level. The common currency continues to orbit the $1.2985 level, the 38.2% retracement level of the move from $1.2785 to $1.3125. Traders continue to be puzzled by the market’s volatility and lack of direction. Notably, the pair stopped short of testing the $1.2945 level yesterday, the 50% retracement of the aforementioned range. One theme that seems to be emerging in traders’ minds is this notion of stronger inflation pressures and weaker U.S. economic growth. The employment cost index and personal consumption expenditures will be released on Friday, preceded by advance Q1 GDP data on Thursday and the durable goods number tomorrow. Data released in the U.S. today saw the April consumer confidence number print at 97.7, down from 103 and below expectations. Other data released in the U.S. today saw March new home sales rise 12.2% to 1.431 million units, defying expectations of a weaker number. Traders continue to speculate about the Federal Open Market Committee’s interest rate announcement next Tuesday. Fed policymakers discussed removing the term “measured” pace from their rate announcement when they last convened but ultimately decided to keep the clause. Many Fed-watchers, however, now believe the Fed will remove this term next Tuesday in what could signal an accelerated path of monetary tightening. In eurozone news, Germany’s six leading economic institutes slashed their 2005 economic forecasts, as expected, to 0.7% from the previous estimate of 1.5%. U.S. dollar bulls are quick to point out that if the U.S. GDP number prints at 3.6% as expected this week, U.S. economic growth could end up being a multiple of German growth in 2005. European Central Bank Vice President Papademos today said all governments “should reduce macroeconomic imbalances” and suggested reforms to the EU’s Stability and Growth Pact will not have any “adverse consequences for growth and stability” in the eurozone, but he cited the escalating price of oil as a downside risk to economic growth, as did EU’s Alumnia. Dealers continue to monitor the run-up to the French referendum on accession of the E.U. constitution as the latest poll indicates 52% of likely French voters are not in favour of the constitution. Data released in the eurozone today saw German March import prices rise 1.3% m/m and 3.8% y/y. ECB President Trichet spoke today and called on eurozone counties to effect structural reforms. Euro bids are cited around the $1.2935 level and euro offers are seen around the $1.3035 level.
The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥106.00 figure and was supported around the ¥105.60 level. The pair closed the day above the technically-important ¥105.55 level yesterday, a signal the pair would try to add to gains above that area today. Many Japanese data were released overnight including the March unemployment rate that fell to 4.5% from 4.7% in March. Also, March salaried household spending rose a real 1.7% y/y and it is noteworthy that salaried household spending was a net gainer in FY 2004 for the first time in eight years. Other data saw nationwide core CPI fall 0.2% y/y last month, the latest evidence that deflation still haunts the Japanese economy. Options traders are reporting a large ¥106.00 maturity at 1400 GMT today along with smaller run-offs at ¥105.00 and ¥104.50. Finance minister Tanigaki characterized Japan’s ongoing deflation as “mild” but reiterated the fact that Tokyo-area core CPI was up 0.2% m/m this month. The Nikkei 225 stock index was off 0.34% to close at ¥11,035.83. Dollar offers are seen around the ¥106.70 level and dollar bids are seen around the ¥105.50 level. The euro appreciated vis-à-vis the yen as the single currency tested offers around the ¥137.70 level and was supported around the ¥137.15 level. The pair closed the day above the ¥137.25 level yesterday, the 50% retracement level of the move from ¥141.55 to ¥132.90. Euro offers are seen around the ¥138.00/ 35 levels and euro bids are seen around the ¥136.90 level. In Chinese news, the markets continue to anticipate a change in China’s yuan currency policy and this is one reason why other Asian currencies – including Japan’s yen – have been pressured higher. The Asian Development Bank will convene in Istanbul next week and some dealers believe will more clearly explain its intentions at those meetings. The Development Research Center of the State Council released a report today that predicts China’s economic growth will slow in Q2 and Q3 before expanding again in Q4. A separate report published in China today suggests China will take additional steps to slow its hot property market.
The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9035 level and was capped around the $1.9130 level. Stops were triggered below the $1.9090 level today and pushed sterling to its lowest level since 19 April. One reason cited for sterling’s weakness today was a story that Nigeria may be headed towards an Argentina-style default on its US$ 33 billion in international debt – around 21% of which is owed to the U.K. A second reason why sterling came off was a report from the Confederation of British Industry that manufacturing orders fell to their lowest level in April since November 2003 while manufacturing prices rocketed to their highest levels in a decade. Cable bids are cited around the $1.9010/ 1.8990 levels with stops seen below the $1.8980 level. Cable offers are seen around the $1.9090 level with additional selling pressure seen around the $1.9130 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.6815 level and was supported around the ₤0.6790 level. Euro offers are seen around the ₤0.6820 level and euro bids are cited around the ₤0.6780/ 60 levels.
The Swiss franc moved marginally higher vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1895 level and was supported around the CHF 1.1855 level. The pair backed down after testing offers around the CHF 1.1920 level yesterday, the 38.2% retracement level of the move CHF 1.1480 to CHF 1.2195. Swiss National Bank President Roth is scheduled to speak on Thursday. Dollar bids are cited around the CHF 1.1835 level and dollar offers are seen around the CHF 1.1920 level. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5410 level and was capped around the CHF 1.5445 level.
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