Tuesday August 9, 2005 - 16:07:44 GMT
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Forex Market Commentary and Analysis (9 August 2005)
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2330 level after encountering resistance around the $1.2415 level. Technically, the common currency moved above the 38.2% retracement level of the move from $1.3085 to $1.1870 but failed to hold the level. Traders are poised for a probable +25bps interest rate hike from the Federal Open Market Committee this afternoon in what would be its tenth consecutive quarter-point monetary tightening. The Fed’s post-meeting policy announcement is what traders are most interested in. Policymakers have maintained a incrementalist and gradualist outlook on rates for quite some time and market participants are curious to see if the FOMC will signal a deceleration in tightening or inflation expectations. A couple of things are likely to be on the forefront of policymakers’ minds and both relate to inflationary pressures. Albeit core producer price and consumer price pressures remain muted, there has been a discernible increase in average hourly earnings and wages. Additionally, September NYMEX oil is at record intra-contract highs and is eating into final private demand. Data released in the U.S. today saw Q2 productivity decelerate to an annualized 2.2%, down from a revised 3.2% in Q1 and preliminary Q2 estimates of 2.9%. Over the past four quarters, productivity has gained 2.3%, its smallest year-on-year gain since Q3 2004. Unit labour costs have jumped 4.3% over the past year, the strongest gain since Q3 2000. In euronews news, European Central Bank Chief Economist Issing noted there have recently been a series of positive signs in the eurozone economy and expresses caution about the high price of oil. Data released in the eurozone today saw Germany’s June trade surplus at €14.8 billion, an improvement over May’s €12.1 billion level. July wholesale prices rose 0.5% m/m in Germany while France’s central government deficit was up €3.7 billion y/y in June.
The yen was marginally weaker vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥112.20 level and was supported around the ¥111.65 level. Technically, today’s high was right around the 61.8% retracement of the move from ¥113.70 to ¥109.80 and today’s low was just below the 50% retracement level of the same range. Data released in Japan overnight saw June core private-sector machinery orders climb 11.1% m/m, above expectations, while they climbed +5.4% y/y and 0.8% q/q. Japan’s government upgraded its assessment of the economy in a report released overnight and reported the economy has overcome a prolonged soft-patch. Also, the government maintained its forecast for Japan’s economy and continues to predict it will expand a real 1.6% in the fiscal year to March 2006. Notably, the government upgraded its estimates for private consumption, business investment, and government spending while lowering its forecast for net exports. If these estimates materialize, they are likely to be coincident with an end to Japan’s long-standing bout with deflation and Bank of Japan is likely to tighten monetary policy shortly thereafter. The central bank maintained its ultra-easy monetary policy overnight and it is likely policymakers debated the merits of reducing the current account surplus target from the current ¥30 – 35 trillion range. BoJ Governor Fukui today said the “soft patch” in Japan’s economy may soon be over and reiterated consumer prices are likely to be positive by the end of the year. On the political front, Prime Minister Koizumi appears poised to hold the snap election he called yesterday on 11 September in what could a major housecleaning of the ruling Liberal Democratic Party. Koizumi failed to secure enough votes in parliament to pass the postal savings privatization bill he has championed as a cornerstone of his economic and financial reform policies. The Nikkei 225 stock index climbed 1.03% to close at ¥11,900.32. Dollar bids are cited around the ¥111.45 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥138.20 level and was capped around the ¥138.70 level. The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥199.55 and ¥88.75 levels, respectively. The dollar depreciated vis-à-vis the yuan today as the greenback depreciated from the RMB 8.1090 to RMB 8.1070. In Chinese news, People’s Bank of China relaxed regulations on the sale of yuan forwards following last month’s revaluation of the yuan.
The British pound was little-changed vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7820 level and was capped around the $1.7915 level. Data released in the U.K. today saw July retail sales fall 1.9% y/y, the worst showing for the month of July in ten years. This represented the fourth successive monthly decline and the slowdown is accelerating. Other data released in the U.K. today saw the June global goods trade deficit narrow to -£4.277 billion from -£4.981 billion. On the political front, the U.K. will convene a special European Union summit on 27-28 October and ratification of the EU’s constitution and ongoing budget issues are likely to be at the top of the agenda. Cable offers are cited around the $1.7925 level. The euro came off marginally vis-à-vis the British pound as the single currency tested bids around the £0.6915 level and was capped around the £0.6940 level.
The Swiss franc lost a slight amount of ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2630 level and was supported around the CHF 1.2540 level. Swiss June retail sales and the July SECO consumer climate index will be released on Thursday. Dollar bids are cited around the CHF 1.2565/ 1.2465 levels. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5585 level while the British pound gained ground and tested offers around the CHF 2.2520 level.
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