Friday August 19, 2005 - 10:36:49 GMT
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Forex Market Commentary and Analysis (19 August 2005)
The euro lost marginal ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2125 level and was unable to move above the $1.2190 level. The dollar stopped just short of testing its strongest level dating to 1 August and stops were reached below the $1.2160 level, representing the 61.8% retracement of the move from $1.1960 to $1.2485. Additionally, the common currency is poised to close the week down over 200 pips and this begets the question of whether the run-up to $1.2485 was profit-taking or the beginning of a larger correction. With no U.S. data scheduled for release today, traders are focusing on monetary policy following a decent week of U.S. data, including some hotter-than-expected wholesale and retail price inflation numbers. The Philadelphia Fed index of manufacturing improved was released yesterday and it rallied to 17.5 this month from 9.6, exceeding expectations and the highest level since April. The Fed funds futures market is currently pricing in 50bps of additional monetary tightening through the end of 2005 and another +25bps of tightening through the Federal Open Market Committee’s meeting in February. Minutes from the Fed’s June FOMC meeting will be released on 30 August and some dealers – albeit a minority – are pondering the chances of a +50bps move by the Fed. Most market participants, however, do not believe this is in the cards because the Fed continues to repeat its “removal of policy accommodation at a measured pace” mantra that has coincided with gradualist +25bps rate hikes. In eurozone news, it was reported that the EMU-12 trade surplus climbed to €6.5 billion in June from May’s revised surplus of €2.7 billion. Also, French GDP data were released today and they rose a provisional 0.1% in Q2 following Q1’s 0.4% increase. Euro offers are cited around the $1.2220/ 75 levels.
The yen moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥110.80 level and was supported around the ¥110.30 level. Technically, today’s high represents the 38.2% retracement of the move from ¥113.70 to ¥109.05 and the ¥110.95 level represents the 38.2% retracement of the move from ¥104.15 to ¥113.70. The pair is poised to gain around ¥1 this week through today’s European session and yen bears are eyeing the ¥111.30/ 35 level as the next upside target. Some dealers believe the yen could gain ground, however, if Tuesday’s June tertiary index evidences strong underlying domestic demand conditions. Both Bank of Japan and the Japanese government have recently spotlighted the improvements in personal consumption and stronger consumer demand translates into less investment capital being exported overseas. On the political front, Prime Minister Koizumi’s popularity ahead of the 11 September snap election he called continues to improve with more than 50% of the electorate supporting him and his reform-minded agenda. A win for Koizumi’s reformed Liberal Democratic Party at the polls may result in a stronger yen on the perception of continued and improved economic and financial reforms including privatization of the massive postal savings system. The Nikkei 225 stock index shed 0.13% today to close at ¥12,291.73. Dollar bids are cited around the ¥110.10 and ¥109.25 levels. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥134.15 level after encountering offers around the ¥134.70 level. The British pound and Swiss franc were little-changed vis-à-vis the yen as the crosses tested bids around the ¥197.80 and ¥86.70 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 8.1047, up from CNY 8.1007 yesterday.
The British pound was little-changed vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7890 level and tested offers around the $1.7975 level. Stops were reached below the $1.7925 level, representing the 61.8% retracement of the move from $1.8330 to $1.7275. Technically, cable has traded at a lower low and/ or lower close every day this week and chartists are now eyeing the $1.7830/ 00 levels as downside targets. The outlook for sterling remains clouded. Bank of England’s Monetary Policy Committee lowered interest rates this month for the first time in two years but inflation data released since then have been strong. Moreover, BoE’s quarterly inflation report was more hawkish-than-expected, raising the likelihood that this month’s move in rates was a one-off event. Data released in the U.K. today saw John Lewis Partnership department stores recede 2.7% to £39.1 million in the week ending 13 August. Cable offers are cited around the $1.8010 level. The euro was largely unchanged vis-à-vis the British pound as the single currency tested bids around the £0.6775 level and was capped just below the £0.6800 figure.
The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2760 level and was supported around the CHF 1.2695 level. Stops were reached above the CHF 1.2740 level, representing the 50% retracement of the move from CHF 1.3055 to CHF 1.2430. Data released in Switzerland today saw the July producer prices index climb 0.2% m/m and 0.6% y/y. Also, the producer and import price index was up 0.4% and 1.1% y/y, reflecting stronger prices for crude oil and related products. On an annualized basis, July import prices were up 2.0% y/y. Dollar bids are cited around the CHF 1.2665 level. The euro gained ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5485 level while the British pound appreciated vis-à-vis the Swiss franc and tested offers around the CHF 2.2850 level.
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