Wednesday August 17, 2005 - 15:50:44 GMT
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Forex Market Commentary and Analysis (17 August 2005)
The euro extended recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2275 level and was capped around the $1.2365 level. Technically, today’s low is right around the 50% retracement of the move from $1.2690 to $1.1870. Chartists cite the $1.2250/ 45 level – representing the 23.6% retracement of the move from $1.3480 to $1.1870 – as being the common currency’s next downside target. The greenback gained ground after the release of stronger-than-expected U.S. July wholesale prices that were reported up 1.0%, about double most forecasts. Prices on gasoline and automobiles soared while the ex-food and energy component was up 0.4%. Excluding cars and truck prices, the core rate was up a tamer 0.2%. Albeit these data were hotter than more economists predicted, many believe these data reflect one-off events and the current spike in energy prices. On an annualized basis, producer price inflation was up 4.6% y/y from June’s 3.6% y/y pace, while core PPI is 2.8% y/y stronger, the highest in some ten years. These data follow yesterday’s CPI data that evidenced a 0.5% climb in retail price pressures last month with the ex-food and energy component up 0.1%. Collectively, these PPI and CPI data do not alter the view that the Federal Open Market Committee will continue to remove policy accommodation at a “measured pace.” Euro offers are cited around the $1.2375 level.
The yen was little-changed vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥109.40 level and was capped around the ¥110.05 level. Technically, today’s high represents the 38.2% retracement of the move from ¥104.20 to ¥113.70 and the 50% retracement level of the move from ¥106.45 to ¥113.70. Strong gains in Japanese equity markets continue to support the yen as the Nikkei 225 stock index established a fresh four-year intraday high around the ¥12,370 level before closing the day off 0.35% at ¥12,273.12. Traders continue to monitor political developments in Japan as Prime Minister Koizumi’s approval ratings are climbing ahead of the 11 September snap election he called last week. Koizumi’s selling point is continuity with regard to economic and financial reforms, especially the privatization of the postal system. Koizumi called the snap election last week after parliament failed to pass a bill that would privatize the postal system. Dollar bids are cited around the ¥108.90 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥134.75 level after failing to get through the ¥135.55 level. The British pound and Swiss franc were off marginally vis-à-vis the yen as the crosses tested bids around the ¥197.65 and ¥86.85 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar today as the greenback closed at RMB 8.0997, down from yesterday’s close of RMB 8.1002.
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8015 level after encountering resistance around the $1.8130 level. Sterling moved higher from intraday lows after it was reported this month’s Bank of England Monetary Policy Committee vote to reduce the repo rate by 25bps was a close 5-4 vote with Bank of England Governor King dissenting from the majority. Many traders expected a unanimous or near-unanimous vote and the apparently high level of disagreement makes it unlikely that another easing will be agreed anytime soon. Technically, sterling-buyers popped in around the 38.2% retracement level of the move from $1.9215 to $1.7270. Data released in the U.K. today saw headline earnings rise 4.2% y/y in the three months to June, 0.1% higher than May’s tally. These data are not likely to stoke any inflationary concerns at the central bank. Cable offers are cited around the $1.8240 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the £0.6790 level and was capped around the £0.6830 level.
The Swiss franc lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2620 level and was supported around the CHF 1.2540 level. Swiss National Bank President Blattner spoke today and said “Consumer sentiment remains muted and unemployment is proving to be stubborn. But the Swiss economy is sending out increasingly positive signals, particularly on the exports side. Growth could even be better than we expect this year and next.” On the interest rate front, Blattner added interest rates “can remain low for a very long time.” SNB last tightened policy in September 2004, by 25bps, and will next convene to deliberate policy in September. Dollar bids are cited around the CHF 1.2465 level and dollar offers are seen around the CHF 1.2695 level. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5470 level while the British pound gained ground and tested offers around the CHF 2.2800 level.
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