Wednesday July 13, 2005 - 13:43:11 GMT
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Forex Market Commentary and Analysis (13 July 2005)
The euro depreciated sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2130 level and was capped around the $1.2240 level. Stops were reached below the US$ 1.2150 level during the move lower, representing the 23.6% retracement level of the move from $1.1875 to $1.2240. The move lower was accelerated after the release of better-than-expected May U.S. trade data that saw a deficit of US$ 55.3 billion, better than the previous reading of –US$56.9 billion. Also, the June import price index printed at 1.0% m/m and 7.0% y/y while the export price index remained unchanged. Traders must now determine whether the U.S. dollar’s recent strength will continue now that some dealers have booked profits and taken the dollar correction to retracement levels or if the dollar’s correction will continue. Data released in the eurozone today saw French June HICP up +0.2% m/m and +1.8% y/y after being flat m/m and up +1.7% y/y in May. French finance minister Breton today said inflation is “under control” and said there are early indications of an upturn in H2. Also, Italian May industrial output fell 1.0% m/m, reversing April’s increase. German finance minister Eichel today said he does not anticipate a downgrade to Germany’s debt rating and predicted Germany’s budget deficit could be below 3% by 2007. It is expected Germany’s deficit will be above 3% in 2006 for the fifth consecutive year and a continued violation of the EU’s Stability and Growth Pact. Euro offers are cited around the $1.2215 level.
The yen moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥111.55 level and remained supported around the ¥110.80 level. Technically, today’s high is right around the 23.6% retracement level of the move from ¥108.10 to ¥112.60. Bank of Japan’s Policy Board convened overnight and decided to keep monetary policy unchanged, as expected. Bank of Japan Governor Fukui reiterated the central bank will not begin “aggressively” reduce its current account surplus target until conditions are met. BoJ also reported Japan’s economic recovery remains on track and noted the information technology sector inventory adjustment is progressing. The central bank highlighted growing consumer spending and corporate investment as driving forces in the economy and predicted consumer price inflation may begin rising in late 2005 or early 2006. Data released in Japan today saw May industrial output fall a revised 2.8% m/m, worse than the previous -2.3% estimate. Also, the May current account surplus receded 19.5% y/y to ¥1.38 trillion, the third decline in five months. Notably, many economists are beginning to upwardly revise their Q2 growth forecasts for the Japanese economy on account of stronger capital investment spending. The Nikkei 225 stock index shed 0.28% to close at ¥11,659.84. Dollar bids are cited around the ¥110.35 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥135.85 level and remained bid around the ¥135.40 level. In Chinese news, it was reported that contracted foreign direct investment rose 18.99% y/y to US$ 86.19 billion. JPMorgan issued a report overnight that predicts China will permit its yuan to appreciate 20%-30% over the next 2-3 years.
The British pound shed some of its recent gains vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7595 level after running out of steam around the $1.7785 level. Technically, cable ran out of steam before reaching the $1.7815 level, the 50% retracement level of the move from $1.8315 to $1.7310. Data released in the U.K. today was a major driver lower for sterling as headline earnings rose 4.1% in the three months to May y/y, down 0.5% from April’s quarterly level and below expectations. May’s rate represented the lowest earnings growth rate since October 2004 and ex-bonuses, the May rate was the lowest since March 2004. This was negative for cable because it implies less income for consumption. Other data released today saw the June claimant count of unemployment rise 8,800 to 864,900, the fifth consecutive monthly rise. Notably, the number of people employed in the U.K. economy declined 72,000 in the three months to May, the largest drop in twelve years. Collectively, these data increase the likelihood that Bank of England’s Monetary Policy Committee will ease interest rates in August. Cable offers are seen around the $1.7605 level. The euro gained marginal ground vis-à-vis the British pound as the single currency tested offers around the ₤0.6910 level and was supported around the ₤0.6875 level.
The Swiss franc depreciated sharply vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2875 level and was supported around the CHF 1.2705 level. The pair actually gapped some 15 pips on the release of the better-than-expected May trade deficit data in the U.S. Technically, the pair is back around the 38.2% retracement of the move from CHF 1.2555 to CHF 1.3075. Swiss producer and import prices will be released tomorrow followed by Swiss retail sales on Friday. Dollar bids are cited around the CHF 1.2815 level. The euro gained ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5595 level and was supported around the CHF 1.5550 level.
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