Friday June 24, 2005 - 14:13:28 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (24 June 2005)
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2095 level and was supported around the $1.1980 level. The common currency moved to an intraday high after the release of U.S. May durable goods orders that saw a stronger-than-expected headline print of +5.5%, while the ex-transportation component was off 0.2%, the third decline in four months. April durable goods orders were downwardly revised to +1.4% from +1.9% and the ex-transportation component was downwardly revised to -0.7% from -0.2%. Later in the session, May home sales were reported up +2.1% at 1.298 million, less than forecasts expected. Notably, the euro traded below the $1.2000 figure for the first time in some ten months after a U.S. player triggered some stop-loss below the figure. Many dealers believe the euro will continue to weaken on the belief the European Central Bank will reduce interest rates before the end of the year. European Central Bank President Trichet speaks today and dealers will closely watch his remarks for any indication he is moving away from his standard “rates are appropriate” mantra. Political concerns such as a failure by the French and Dutch to approve the European Union constitution weigh on the euro, as does this week’s +50bps interest rate cut by Sweden’s Riksbank. Data released in the eurozone today saw preliminary German June CPI up 0.2% m/m and +1.9% y/y while the number of jobless in Germany are said to have declined by 60,000 m/m and climbed +513,000 y/y. Other bad news for the euro today saw the Italian government conceded that 2005 GDP growth will be “close to zero” and its budget deficit will be around 4% of GDP, easily breaching the EU’s Stability and Growth Pact limits. French Prime Minister de Villepin today characterized mounting oil prices as a “heavy constraint” on France’s economy. Options traders cite option barriers around the $1.1975/ 50/ 00 levels. Euro offers are cited around the $1.2105 level.
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥109.35 level and was supported around the ¥108.85 level. Technically, today’s high was right around the 76.4% retracement of the recent move from ¥109.70 to ¥108.10. Traders are talking about the possibility of a bilateral meeting between Japanese finance minister Tanigaki and Renqing, his Chinese counterpart, this weekend. The meeting would be the first of its type in some four years and China’s pending revaluation of its yuan currency would feature prominently in discussions. Data released in Japan today saw the May corporate services price index recede 0.3% m/m and 0.5% y/y – the 56th consecutive monthly decline - while May department store sales were off 1.3% y/y to ¥609.2 billion, their thirteenth decline in fifteen months. Likewise, May supermarket sales were off 3.4% y/y, their eighteenth decline in nineteen months. These data evidence the continuing effects of deflation on the Japanese economy as consumer delay spending decisions believing they can consume goods cheaper in the future. Japan’s government expressed concern overnight with movements in the crude oil market where futures have topped out right around the US$ 60.00 figure. Japan is a major net importer of foreign oil and increases in energy prices have a negative impact on its economy, as explained by economy minister Takenaka overnight. August 2005 NYMEX crude futures printed as high as $60.00 while later-dated contracts reached $60.83 (October 2005) and $61.13 (December 2005). Traders continue to talk about the upcoming release of the quarterly Bank of Japan tankan survey of consumer sentiment and the forecasts for an improvement in the key headline report. The Nikkei 225 stock index shed 0.34% to close at ¥11,537.03. Dollar bids are cited around the ¥108.50 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥132.10 level and was supported around the ¥130.80 level. Yesterday, the cross traded at its lowest rate in nearly one year. In Chinese news, it is being reported that the yuan will be a topic of discussion at the G8 summit in Gleneagles on 6-8 July. Fed Chairman Greenspan and Treasury Secretary Snow testified about China’s economy and its yuan currency in Congress yesterday and while they called for a revaluation, they argued against protectionist measures. Chinese Premier Wen Jinbao will speak at a meeting of European and Asian finance ministers this weekend in Tianjin.
The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8245 level and remained supported around the $1.8110 level. There were no data of consequence released in the U.K. today. The dominant theme in the U.K. continues to be the U.K.’s refusal to cede its multi-billion euro annual rebate from the European Union without modifying France’s and other countries’ agricultural rebates. Prime Minister Blair and the U.K. will assume the rotating six-month presidency in one week and an EU budget deal between 2007 and 2013 will be a priority. Data scheduled for release in the U.K. next week includes consumption and lending figures. Cable offers are cited around the $1.8245/ 75 levels. The euro moved marginally lower vis-à-vis the British pound as the single currency tested bids around the ₤0.6615 level and was capped just ahead of the ₤0.6640 level.
The Swiss franc rose vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2740 level and was capped around the CHF 1.2840 level. The pair spiked higher by 30 pips in late Asian dealing after the euro traded below the psychologically-important $1.2000 figure. The pair is set to close the week with a positive gain and this represents the ninth consecutive week the pair has established a higher high and/ or closed higher. Dollar bids are cited around the CHF 1.2710/ CHF 1.2680 levels. The euro gained marginal ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5425 level and was supported around the CHF 1.5375 level.
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