Wednesday June 22, 2005 - 13:48:33 GMT
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Forex Market Commentary and Analysis (22 June 2005)
The euro moved sharply lower vis-à-vis the U.S. dollar in European dealing today and tested bids just above the US$ 1.2100 figure in early North American dealing. Absent any significant eurozone or U.S. data today, the focus continues to be on eurozone budgetary problems and political divisions. French President Chirac today said U.K. Prime Minister Blair’s “intransigence” during last week’s European Union budget discussions for 2007 – 2013 led to a breakdown in discussions. The U.K. and Blair will assume the rotating six-month EU presidency in July and Blair may seek a budget deal at that time. Poland announced it will not hold a referendum about ratifying the European Constitution following France’s and Holland’s decision not to ratify it and Luxembourg indicated it will hold its referendum around 10 July. The euro came back in North American dealing yesterday as traders reacted to comments from European Central Bank President Trichet who failed to dovishly suggest the next monetary policy move would be lower rates. Trichet reiterate current eurozone rates are at “historically low levels” and said they are “appropriate” for now. Bank of Spain’s Caruana said the eurozome economy has been characterized by “persistent weakness” in the first half of 2005 while ECB Chief Economist Issing said he does not believe the euro’s current weakness will persist. Bundesbank’s and ECB’s Weber speaks at 1730 GMT today. Data released in the eurozone today saw the EMU-12 April trade surplus at €1.3 billion compared with €6.8 billion one year ago while EMU-12 April industrial orders climbed 1.5% m/m and were up 1.6% y/y. In U.S. news, former Fed Governor Bernanke was officially sworn in as chairman of the White House Council of Economic Advisers yesterday. U.S. May existing home sales will be released tomorrow and followed by May durable goods orders on Friday. Euro offers are cited around the US$ 1.2160 level.
The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥109.10 level and was supported around the ¥108.15 level. Technically, these levels are around the 23.6% and 50% retracement levels of the recent move from ¥106.50 to ¥109.65. Data released in Japan overnight saw its May trade deficit with China escalate 120.5% to ¥265.2 billion while it surplus with all of Asia fell 40.2% to ¥354.7 billion. Overall, the May trade surplus was off 1.0% m/m and down 68.3% y/y to ¥690 billion. This represented the fourth decline in five months and was attributed to weak export growth and a surge in import prices on account of oil and other commodities. Another data release saw the NLF May business sentiment of small companies come in mixed last month and it is expected to improve in June. Finance minister Tanigaki indicated he may engage his Chinese counterpart in bilateral talks. Dealers cited talk of an Asian central bank selling dollars for yen around the ¥109.00 figure. The Nikkei 225 stock index climbed 0.51% to close at ¥11,547.28. The euro was marginally lower vis-à-vis the yen as the single currency tested bids around the ¥131.70 level and was capped around the ¥132.40 level. The cross moved to an intraday low during early North American dealing. In Chinese news, Fed Chairman Greenspan and Treasury Secretary Snow are scheduled to testify tomorrow about U.S. – China economic relations before the Senate Finance Committee. U.S. lawmakers are expected to grill them about why China has not yet revalued its yuan currency and what the appropriate response should be. Ministry of Finance official Zhu Guangyao today said pressure from the U.S. will not accelerate China’s revaluation time frame because “it is a sovereignty issue.” Zhu also indicated political pressure will “delay the process.” Data released in China today saw May industrial profits climb 15.8% y/y. Chinese President Hu will attend the G8 summit in Gleneagles next month.
The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8175 level and was capped around the $1.8325 level. Sterling fell precipitously during European dealing following the release of the minutes from Bank of England’s June Monetary Policy Committee meeting. MPC officials voted 7-2 to keep interest rates unchanged. Chief economist Bean and exiting MPC member Bell voted to lower interest rates, arguing that monetary expansion now may reduce the need for a larger cut later. The majority argued that a rate reduction now might send the signal that policymakers believe the economy is weaker than they actually believe it to be. These MPC meeting minutes will likely have a weakening effect on sterling as traders will shift back to expecting a rate cut by the end of 2005. Notably, one MPC official voted for a rate hike as recently as last month. Cable offers are cited around the US$ 1.8305/ 10 levels. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6645 level and was capped just below the ₤0.6690 level. Euro offers are cited around the ₤0.6700 figure.
The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2735 level and was supported around the CHF 1.2620 level. The pair reached an intraday high in early North American dealing. There is increased talk on trading desks of the Swiss franc being used as a funding currency for carry trades in which dealers borrow in Swiss francs and invest in currencies and assets with a higher yield. Dollar bids are cited around he CHF 1.2700/ 1.2650 levels. The euro came off marginally vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5390 level and was capped around the CHF 1.5430 level.
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