Friday June 3, 2005 - 13:33:26 GMT
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Forex Market Commentary and Analysis (3 June 2005)
The euro was volatile vis-à-vis the U.S. dollar today as the single currency gathered steam and tested offers around the US$ 1.2310 level during early European dealing but quickly retreated following a shocking comments from a eurozone official. Italian Welfare Minister Maroni suggested it would be “better” if Italy readopted the lira again, a very controversial comment in light of the recent problems the European Union has had. The common currency dove to the $1.2230 level in mere minutes on this comment but was back just below the $1.2300 figure by the time U.S. non-farm payrolls data for May were released. The Italian comment was stinging because France and Holland this week voted to turn down the EU constitution. The European Commission reacted by confirming “the euro is forever.” Luxembourg Prime Minister Juncker said he will resign if his country rejects the EU constitution when it votes next month. He also confirmed the EU’s charter would be over if more than five countries said no to the constitution. These comments through the euro into panic mode, especially after a media report this week that Bundesbank President Weber and finance minister Eichel attended a meeting last week in which it was suggested Europe’s Economic and Monetary Union is in trouble. Similarly, Economy Minister Clement today said Germany is “paying” a high “price” by being in Economic and Monetary Union because it “cannot offer relatively lower interest rates” to its economy. The European Council will convene on 16-17 June and this crisis – along with budget issues – will be at the top of the agenda. The U.S. May payrolls data saw only 78,000 new jobs created last month, around 100,000 less than expected and some 200,000 less than April’s strong tally. This represented the smallest monthly gain since August 2003. The unemployment rate printed at 5.1% and average hourly earnings were up +0.2%. April’s strong number was not revised and most economists were surprised by the relatively weak job growth last month but many expected it given the weak employment component in this week’s U.S. ISM manufacturing data. The euro initially spiked to the $1.2340 level on the number, then quickly came off to the $1.2260 level before soon finding its way to the $1.2320 level. Traders will be alert to the May ISM non-manufacturing survey later in the day. In other eurozone news, EMU-12 April retail sales were off 1.2% m/m and 0.9% y/y while the May services PMI index printed at 53.5, up from 52.8 in April. Germany and France both reported improvements while Italy’s index worsened. Other data released today saw French retail sales remain unchanged in March after February’s tally was revised to +0.3%. In other eurozone news, the European Central Bank lowered its 2005 and 2006 growth forecasts, as expected. The ECB bow sees 2005 GDP growth of 1.4% to 1.6%. Euro offers are seen around the $1.2390 level.
The yen gained ground vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.75 level and was capped around the ¥108.30 level, an area where the pair had some difficulty last week. The dollar was in a downward spiral at intraday lows when traders moved it higher on euro-negative comments from an Italian government official but the pair could not hold its gains and soon moved back below the ¥108.00 figure. The Nikkei 225 stock index climbed 0.18% to close at ¥11,300.05. Dollar bids are seen around the ¥107.30/ ¥106.70 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥132.20 level and was capped around the ¥132.90 level. Euro offers are cited around the ¥133.05 level. In Chinese news, the Chinese media is reporting property prices have slowed since the beginning of May, reflecting governmental measures to depress the torrid real estate sector. Attention will also turn to next weekend’s meeting of G7 finance officials in London to see whether there is a renewed bout of pressure on China to revalue the yuan currency.
The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8235 level immediately following the tepid May U.S. jobs report. Traders then pushed sterling back down to the $1.8165 level before it reclaimed the $1.8225 level, only to be knocked back below the $1.8200 figure. Sterling fell back earlier in the day after the release of a weaker-than-expected May services activity index that printed at 55.1, compared with April’s 56.5 reading, though it remained above the “boom-or-bust” 50.0 level. Other data released in the U.K. today saw John Lewis Partnership store sales moved lower in the week ending on 28 May. Q1 U.K. construction output remained unchanged q/q and was up 1.0% y/y. Cable offers are seen around the $1.8255 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6730 level and was capped around the ₤0.6770 level.
The Swiss franc was little-changed vis-à-vis the U.S. dollar today as the greenback receded to the CHF 1.2450 level after the release of U.S. non-farm payrolls data but soon moved back above the CHF 1.2500 figure. The pair spiked to the CHF 1.2555 level early in the European session but stopped around 40 pips from testing recent multi-month highs. Dollar bids are cited around the CHF 1.2420 level. The euro was little-changed vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5335 level and was capped around the CHF 1.5375 level.
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