Monday June 14, 2004 - 15:09:04 GMT
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Forex Market Commentary and Analysis (14 June 2004)
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested the technically important US$ 1.2065/70 level after finding good demand around the $1.1955 level during European dealing. Dealers kept the pair bid above the $1.1950 level, an area that is said to be the bottom of a $1.1950/ $1.2490 DNT option position that expires on 14 July. The pair moved to intraday highs after the release of U.S. economic data that saw the U.S. trade deficit widen to US$ 48.33 billion in April from a revised $46.57 billion in March. This may lead to a downward revision in some Q2 GDP forecasts. Also, May retail sales expanded +1.2% with the ex-autos component up 0.7%. Traders await tomorrow’s CPI data to see if they evidence inflation and push the Fed closer to a 50bps monetary tightening. Fed funds futures contracts are currently discounting a 100% chance of a 25bps hike on 30 June and just above a 30% change that the FOMC goes 50bps this month. Core inflation data are likely to be a key determinant. Data released in the eurozone today saw French May HICP up +0.4% m/m and +2.8% y/y while April Italian industrial output improved. ECB’s Caruana was on the wire today saying recent EMU-12 inflation data has “not been positive” due to oil. German DIW official Horn was also on the wires today saying there is a “good chance” the German economy may expand by more than the 1.5% rate forecasted in April. Meanwhile, Bank of France reduced its forecast for Q2 GDP growth today from +0.6% to +0.5%. Euro stops are cited below the $1.1940 level.
The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥111.35 level after a brief dip to the ¥110.05 level during Australasian dealing. The pair absorbed some important technical resistance around the ¥110.35/110.70/ 111.00 figures during the move higher but slipped back below the ¥111.00 figure after the release of U.S. economic data. Stops were hit above the ¥110.50 level and stops were also reached above the ¥111.20 level where Japanese exporters had been seen to have offers. FSA’s Takenaka characterize the rise in Japanese yields as a good sign of Japanese economic expansion and reiterated Japanese banks will continue to shore up their balance sheets. In contrast, MoF’s Hayashi said a long-term rise in yields is not good. The Nikkei 225 stock index reversed intraday gains and finished off 0.31% to close at ¥11,491.66. Dollar offers are cited around the ¥111.50 level and dollar bids are seen around the ¥110.00 figure. Dollar stops are cited around the ¥109.90 level. The euro made strong gains vis-à-vis the yen today as the single currency tested offers around the ¥133.95 level after finding good demand around the ¥131.75 level during Australasian dealing. The cross briefly retraced to the technically-important ¥132.45 level during early North American dealing before attacking the ¥134.00 figure. Stops were reached above the ¥133.60 level. Euro bids are cited around the ¥132.20 level. In Chinese news, People’s Bank of China denied a report that a rise in interest rates was imminent. These stories followed news that foreign investment ballooned 11% recently. Other Chinese data released today saw a sizable deceleration in growth in fixed asset investment to RMB 439 billion.
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8040 level after running out of steam around the $1.8190 level. Stops were triggered below the $1.8100 figure during the move lower but the pair paused after the release of some U.K. economic data. It was reported that May producer output prices were up +0.3% m/m and +2.4% y/y with the core rate up +0.1% and +1.4%, respectively. May producer input prices were up +1.6% m/m and +5.3% y/y. Traders will deliberate whether or not these data will precipitate higher U.K. interest rates in the coming months. Cable bids are cited around the $1.8035 level with stops below that level. Additional cable bids are seen around the $1.7980 level. The euro moved higher vis-à-vis the British pound today as the single currency tested offers around the £0.6655 level. Euro bids are cited around the £0.6550 level.
The Swiss franc gained ground vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2550 level after peaking around the CHF 1.2665 level overnight. Data released in Switzerland today saw retail sales climb 1.6% y/y in April. Traders eagerly await the Swiss National Bank’s monetary policy assessment on Thursday to determine whether or not a tighter official policy will be enacted. Swiss National Bank added one-week liquidity at 0.11% today, the same rate it has used since 2 April 2003. June EuroSwiss futures are pricing in three-month rates of 0.44% by the end of June and 1.33% by the end of December. The euro moved higher vis-à-vis the Swiss franc today as the single currency tested offers around the CHF 1.5175 level.
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