Tuesday August 16, 2005 - 10:28:30 GMT
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Forex Market Commentary and Analysis (16 August 2005)
The euro lost ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2315 level after failing to advance past offers just below the $1.2375 level. Stops were reached below the $1.2335 level, the 23.6% retracement level of the move from $1.1870 to $1.2485. Also, the common currency was capped just below the 61.8% retracement of the $1.2690 to $1.1870 range. Chartists are eyeing the $1.2280/ 50 levels as downside targets. There was a dearth of economic data released in the eurozone today saw the pair took its cues from yesterday’s U.S. Treasury International Capital (TIC) flows report. The headline number evidenced a climb to US$ 71.2 billion in June from US$ 55.8 billion in May, defying expectations of an increase to US$ 65 billion. More importantly, this means the U.S. easily covered its reported US$ 58.8 billion trade deficit in June. Analysis of the data, however, revealed that European names went long U.S. debt heavily two months ago and saw Asian demand for U.S. assets come off. This is a very important point that traders must scrutinize because Asian capital flows have largely financed the U.S. current account deficit over the past several years and any indication that demand is waning could be difficult for the dollar vis-à-vis Asian currencies. If Asian demand tapers off it will beget the question of which global area – if any – will pick up the slack and demand for U.S. assets. The dollar’s fortunes could be tied into this dynamic very closely, particularly after China’s revaluation of the yuan on 21 July and the market’s current and renewed preoccupation with structural imbalances like U.S. deficits and not cyclical factors such as growth and interest rate differentials. U.S. July CPI data will be released today and most dealers are expecting around a 2.0% y/y climb in core retail inflation. In eurozone news, Financial Times Deutschland is reporting corporate tax revenues are some €1 billion below target in the first seven months of 2005. Euro offers are cited around the $1.2375/ 95 levels.
The yen relatively flat vis-à-vis the U.S. dollar today as the greenback tested offers just below the ¥109.50 level and was supported just above the ¥109.00 figure. Today’s price activity, however, marks the sixth consecutive daily session that the pair has established a new consecutive low and/ or a new consecutive lower close. Chartists are eyeing the ¥108.90 level – the 50% retracement level of the move from ¥104.15 to ¥113.70. Similarly, today’s low is right around the 38.2% retracement level of the wider move to ¥113.70 from ¥101.65. Data released in Japan today saw the June index of leading economic indicators upwardly revised to 63.6 from 60.0, the first time the measure has been above the “boom-or-bust” 50.0 level in five months. Also, the coincident index was unrevised at 100, the third time in ten months it has been above the 50.0 level. The Nikkei 225 stock index climbed 0.48% to close at ¥12,315.67. Japanese equity markets continue to probe multi-month highs and this has recently resulted in significant capital inflows from abroad, also supporting the yen. Dollar bids are seen around the ¥108.90/ 20 levels while dollar offers are cited around the ¥109.85 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥134.60 level and was capped around the ¥135.30 level. The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥197.40 and ¥86.75 levels, respectively. The yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at RMB 8.1002, up from yesterday’s close of RMB 8.0971. The dollar, however, has recently depreciated vis-à-vis the yuan and this has led some traders to believe China may be signaling its willingness to permit a stronger yuan, albeit gradually. Chinese data released today saw January – July urban fixed-asset investment climb 27.2% to RMB 3.46 trillion.
The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8055 level and was capped around the $1.8145 level. Sterling moved to intraday highs after the release of July U.K. CPI data that saw a 2.3% y/y climb in CPI, the highest jump since at least January 1997. Escalated oil and transportation prices led to the climb above Bank of England’s 2.0% target level. The climb was not entirely unexpected as the central bank last week indicated retail price inflation would be above target in two years when it released its quarterly inflation report. On a monthly basis, CPI was up 0.1% m/m, above estimates of a 0.2% fall. This has led many traders to conclude that the Monetary Policy Committee’s decision to ease policy by 25bps for the first time in two years ago this month was probably a one-off event and not the beginning of a more expansionary easing cycle. Cable offers are cited around the $1.8240 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.6805 level and was capped around the £0.6835 level.
The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2595 level and was supported around the CHF 1.2540 level. Stops were triggered above the CHF 1.2575 level during the move higher, representing the 23.6% retracement level of the move from CHF 1.3055 to CHF 1.2435. Swiss June retail sales will be released on Thursday followed by July producer and import prices on Friday. Dollar bids are seen around the CHF 1.2465 level. The euro was little-changed vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5505 level and was capped around the CHF 1.5525 level while the British pound moved higher to test offers around the CHF 2.2795 level.
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