Monday June 7, 2004 - 15:52:51 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (7 June 2004)
The euro appreciated modestly vis-à-vis the U.S. dollar today as the single currency tested offers around US$ 1.2340 level and found some good bids around the $1.2280 level. Today’s levels were near two-month highs and Asian names were seen on the offer near intraday highs. Traders are citing very few fundamental reasons to buy dollars here given the fact that Friday’s May U.S. non-farm payrolls data were in-line with expectations and did little to increase the likelihood of a 50bps monetary tightening by the FOMC on 30 June. Instead, most market participants believe the Fed will enact a “measured” series of rate hikes through the end of year, beginning with a 25bps move this month. Fed Governor Kohn on Friday said the Fed will give “careful scrutiny” to inflation expectations are is prepared to move “decisively” if the recent increase in inflation becomes “more than transitory.” Treasury Secretary Snow said “inflation is modest and it’s going to continue to be modest in the foreseeable future because of high productivity.” Traders are also paying close attention to the price of crude oil following its move below the $38.50 level. German Deputy Economics Minister Tacke – Chancellor Schroeder’s G8 sherpa – said he is “very content” with the euro’s exchange rate vis-à-vis the dollar. Data released in the eurozone today saw German unemployment decline 136,000 in May to 4.307 million, another factor cited for today’s euro buys. Traders will pay very close attention to Friday’s U.S. PPI and University of Michigan sentiment index on Friday. Euro offers are seen above the $1.2390 level and options traders note option barriers around the $1.2350/ $1.2400 levels.
The yen scored strong gains vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥111.00 figure before moving to the ¥109.50 level during North American dealing. Stops were triggered below the ¥110.60/ 25 levels as the pair tracked the moves in the euro/yen cross. The move temporarily decelerated as the pair approached the ¥110.00 figure but then resumed with stops being reached below the ¥109.80 level. MoF’s Hayashi today said the government is closely monitoring long-term Japanese interest rates. Data released in Japan today saw Japan’s foreign exchange reserves at US$816.85 billon through the end of May, an increase of US$ 18.8 billion. This is the second time on record that Japan’s month-end total exceeded $800 billion. The Nikkei 225 stock index gained 2.80% to close at ¥11,439.92. Dollar bids are cited around the ¥109.10/00 level but there is also talk of ¥109.50 bids. Dollar offers are cited around the ¥110.50/ 70 levels with selling interest seen through ¥111.00. Dollar stops are cited above the ¥111.10 level. Options traders cite the expiry of a ¥111.00 strike at 1400 GMT today along with a ¥107.80 strike. The euro weakened vis-à-vis the yen today as the single currency tested bids around the ¥134.95 level after capping out around the ¥136.70 level. Some stops were triggered on the brief move above ¥136.40 and additional euro offers are seen around the ¥137.00 figure. In Chinese news, People’s Bank of China Governor Zhou Xiaochuan said the said the central bank will closely monitor any additional changes in consumer price amid speculation that consumer price inflation could top 5% in May and June. Also, the Chinese Securities Journal reported China may phase out its seven-year old proactive fiscal policy in an attempt to contain the investment market.
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