Wednesday April 27, 2005 - 13:32:48 GMT
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Forex Market Commentary and Analysis (27 April 2005)
The euro extended its recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2905 level after failing to get through resistance around the $1.2995 level. Technically, the pair has had a lower daily high and/ or low for four consecutive sessions and hit stops below the $1.2935 level, the 23.6% retracement level of the move from $1.3480 to $1.2765 level. The pair battled back after the release of weaker-than-expected U.S. March durable goods orders that saw headline orders off 2.8% while the ex-transportation sub-index came in at a weaker-than-expected -1.0%. February’s headline print was also downwardly revised to -0.2%. These data are typically very volatile but they also underscore what many economists have said about the U.S. economy: it may have hit a soft patch in late Q1. The dollar showed little reaction to two reports overnight that would have dented it in the past. First, it was reported that South Korea will sell up to US$ 17 billion of U.S. Treasuries to finance a new government investment agency – a story South Korea denied. Second, Central Bank of Russian Federation Deputy Chairman Ulyukayev reported Russia will increase the euro’s weighting in its foreign exchange basket to 30% from 20% soon. This is the second similar pronouncement from that central bank in six weeks. Advance Q1 U.S. GDP data will be released tomorrow followed by personal income, personal spending, and personal consumption expenditures data on Friday. In euro news, European Central Bank President Issing said the central bank is “concerned” about strong M3 growth and said inflation expectations need to be “contained.” He said the ECB still anticipates an improvement in economic growth in H2 2005 but said current economic activity risks are “clearly on the downside.” He characterized Q2 prospects as “weak” and said high oil prices “handicap” the eurozone economy. In other ECB news, former President Duisenberg said European leaders unsuccessfully tried to influence the ECB’s monetary policy during his tenure, raising the question of how independent the central bank remains. Data released in the eurozone today saw May German GfK consumer confidence print at 4.9 from a revised 5.1 in April while French March PPI was up +0.6% m/m and +3.1% y/y. Other French data released today saw April manufacturing sentiment come in at 97 and Italian service sector confidence fell ten index points this month. Euro bids are seen around the $1.2935 level and euro offers are cited around the $1.3035 level.
The yen moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥106.40 level and was supported right at the ¥106.00 figure. The pair has now been in positive territory for three consecutive days and technically is eyeing the ¥106.72 level, the 50% retracement level of the recent ¥111.70-101.75 level. Finance minister Tanigaki will attend next week’s Asian Development Bank meeting in Istanbul along with his Chinese counterpart, Jin Renqing. March industrial production and retail sales will be released tonight. The Nikkei 225 stock index lost 0.28% to close at ¥11,005.42. Options traders cite expiries at ¥106.20/ 25 at 1400 GMT today. Dollar bids are cited around the ¥105.90 level with stops below and dollar offers are seen around the ¥106.50/ 60 levels with stops above there. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥137.05 level and was capped around the ¥137.95 level. The cross is currently trading just above the 50% retracement level of its ¥141.60 - ¥132.90 range. Euro offers are seen around the ¥138.00 figure with stops above and the ¥137.00 figure continues to be cited as an option barrier with stops below. Options traders cite a ¥138.20 run-off at today’s New York cut. In Chinese news, economist Ba Shusong said conditions are “basically ready” for China to initiate exchange rate liberalization and indicated such a policy is just a matter of choosing the right time. There is current speculation that China will use the 1 May Labour Day holiday to announce a move towards liberalization but non-deliverable yuan forward discounts are now trading around 4,100/ 4,250, down from 4,200/ 4,350. This means traders today believe there is less of a chance for a change in China’s policy in the next year than they contemplated yesterday. Data release din China today saw Q1 urban expenditures up 11.3% y/y.
The British pound reversed course and notched small gains vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8985 level before moving back above the $1.9065 level during North American dealing. Technically, sterling stopped just short of testing the 38.2% retracement level of the move from $1.8585 to $1.9215. Data released in the U.K. today saw BBA mortgage approvals reach their highest level in March since July 2004 and said overall mortgage data evidence “signs of a spring stimulus.” Options traders cite a large $1.9000 maturity at 1400 GMT today. Cable bids are seen around the $1.8985 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6790 level and was capped around the ₤0.6815 level.
The Swiss franc erased most of its losses vis-à-vis the U.S. dollar today as the greenback failed to sustain its move above the CHF 1.1950 level and came off below the CHF 1.1900 figure. The pair was supported around the CHF 1.1855 level, around yesterday’s low print. Technically, today’s high was right around the 50% retracement level of the move from CHF 1.2195 to CHF 1.1740. Swiss National Bank President Roth is scheduled to speak tomorrow. Dollar bids are seen around the CHF 1.1835 level. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5395 level and was capped around the CHF 1.5440 level.
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