Thursday July 7, 2005 - 13:18:28 GMT
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Forex Market Commentary and Analysis (7 July 2005)
The euro gained ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2040 level and was supported around the $1.1910 level. A series of terrorist attacks in London during the morning commute saw the pair move to intraday highs that represented the 38.2% retracement of the recent depreciation from the $1.2280 level to the $1.1865 level. A previously unknown splinter group of Al Qaeda is claiming responsibility for the multi-bomb attack and the U.S. dollar suffered in the immediate aftermath. G8 officials appeared at a statement by U.K. Prime Minister Blair at the summit in Gleneagles in a show of solidarity. As expected, the European Central Bank kept interest rates unchanged today with the main refinancing rate steady at 2.00%, the same level where it has been for a couple of years. Many traders believe the ECB will eventually expand monetary policy and lower interest rates later in the year. The ECB news conference will be closely scrutinized later in the session. Dealers continue to prepare for tomorrow’s U.S. June non-farm payrolls number with more forecasts focusing on payroll gains of 180,000 – 200,000. Data released in the U.S. today saw weekly initial jobless claims rise 7,000 to 319,000, consistent with expectations. St. Louis Fed President Poole spoke about Fed Chairman Greenspan’s legacy yesterday and said “predictability” has been one of Greenspan’s most significant contributions to monetary policy. Euro offers are cited around the $1.2025/ 75 levels.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥111.50 level after peaking around the ¥112.30 level, a fresh multi-month high. The pair moved to intraday lows following news of the terrorist attacks in London. MoF’s Watanabe reported recent movements in the yen as natural and added the U.S. economy is stronger than Japan’s economy. Nikkei reported Bank of Japan’s Policy Board will not alter monetary policy when policymakers convene next week. The central bank is expected to keep its long-standing quantitative easing policy intact until there is positive inflation year-on-year inflation growth. Even if the central bank permits the current account surplus to fall below its current ¥30 – 35 trillion target range, such an event will be deemed technical and not an overt shift in policy. Data released in Japan today saw Japan’s foreign exchange reserves escalate US$ 1.07 billion to $843.54 billion last month. Other data released today saw Teikoku business confidence decline for the first time in four months last month, off 0.5 index points m/m to 43.0. Also, June machinery orders climbed 6.9% m/m to ¥114.89 billion. Capital flows data for the week to 1 July released today saw foreign investors’ net buying of Japanese equities decline to a net ¥74.1 billion while ¥312.3 billion of bonds were bought. Japanese investors purchased a net ¥7.6 billion of foreign shares and sold ¥249.8 billion in foreign bonds. The London bomb blast had the effect of knocking crude oil prices lower to the $57 handle as traders booked profits. The Nikkei 225 stock index shed 0.12% to close at ¥11,590.14. Dollar bids are cited around the ¥111.30 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥133.50 level and was capped around the ¥134.30 level. In Chinese news, People’s Bank of China reported it sees H1 GDP up 9.2% y/y and expects 2005 consumer price inflation to be around 2.7%.
The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7400 figure following a coordinated wave of terrorist attacks on London transportation targets. Some seven explosions ripped through the London Underground and at least one bus and Al Qaeda has assumed responsibility for the attacks. Prime Minister Blair left the G8 summit in Gleneagles to return to London to assess the situation. Prior to the attacks, the big event of the day was a move through the $1.7480 level, the 50% retracement level of the move from $1.5465 to $1.9550. Technically, the $1.7290 and $1.7015 levels remain the next support levels for cable. As expected, Bank of England’s Monetary Policy Committee maintained its repo rate at 4.75% and did not issue any statement. The real question for traders will be how many policymakers voted for lower interest rates and this will become known when the minutes of the MPC meeting are released in two weeks. Data released in the U.K. today saw the June Halifax house prices increase at its lowest pace since March 2001. Halifax, however, cited signs of improvement in the U.K. housing sector. NIESR reported U.K. GDP was up slightly in the three months through June, but significantly below trend. GDP rose 0.3%, up from the 0.1% increase in the three months through May. Cable offers are cited around the $1.7490 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.6900 figure and was supported around the ₤0.6800 figure. This cross has not been this strong since 27 May.
The Swiss franc moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2855 level following the terrorist attacks in London. The buying activity was cited as safe-haven flows as the Swiss franc also strengthened vis-à-vis the euro, British pound, Canadian dollar, and Australian dollars. Data released in Switzerland today saw the jobless rare decline for the fifth consecutive month in June to 3.6% from May’s 3.7% rate. Dollar bids are cited around the CHF 1.2895/ 1.2840 levels. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5430 level and was capped around the CHF 1.5555 level. The British pound fell acutely vis-à-vis the Swiss franc as sterling tested bids around the CHF 2.2430 level.
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