Monday August 22, 2005 - 14:36:39 GMT
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Forex Market Commentary and Analysis (22 August 2005)
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2240 level and was supported around the $1.2155 level. Stops were triggered above the $1.2210 level, representing the 23.6% retracement of the move from $1.2485 to $1.2125. Chartists cite the $1.2245/ 50 level as the next upside target for the common currency. Traders are looking forward to a speech by Federal Reserve Chairman Greenspan on Friday to glean his current thinking about monetary policy and inflation risks. The pair moved higher overnight when it was reported that Russia finished the early prepayment of more than one-third of its so-called Paris Club debt totaling US$ 15 billion. This benefited the euro because Russia is a major exporter of oil and its foreign exchange earnings have risen as the price of oil has moved higher. Russia’s central bank has indicated it is buying more euros with its foreign exchange reserves at the expense of the U.S. dollar. Similarly, Russia’s prepayments benefit eurozone countries like Germany that are contending with budget deficits that are not compliant with the European Union’s Stability and Growth Pact. Eurozone data released today saw the EMU-12 current account deficit print at €2.5 billion in June compared with May’s surplus of €1.9 billion. Italian finance minister Siniscalco today reported his country will save some €17.5 billion in its 2006 budget to meet its debt reduction target. The ZEW investor confidence number will be released tomorrow followed by the Ifo business confidence index on Thursday, both of which are expected to improve for the third consecutive month. Improvements would evidence a continued pick-up in German final private demand. Data scheduled for release in the U.S. this week include Wednesday’s durable goods orders and U.S. home sales numbers tomorrow and Wednesday. Euro offers are cited around the $1.2265/ $1.2305 levels.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥109.40 level after encountering offers around the ¥110.50/ 55 level. Stops were reached below the ¥110.40 and ¥109.85 levels, respectively representing the 38.2% and 23.6% retracements of the move from ¥112.60 to ¥109.05. Yen gains were precipitated by a strong move in Japanese equity markets as the Nikkei 225 index climbed 1.3% to close at ¥12,452.50, its strongest level in more than four years. Shares in the Japanese banking sector have been supported recently on the belief that bank lending data will improve after several years of declines. Foreign investors are said to be heavily investing in yen. On the political front, Prime Minister Koizumi continues to be supported by the majority of Japan’s electorate ahead of the snap election he called for 11 September. A victory for Koizumi and his reformed Liberal Democratic Party could bode well for yen bulls who champion Koizumi’s reform-minded policies. Minor data released in Japan overnight saw July convenience store sales off 4.7% y/y, the twelfth consecutive decline. Dollar bids are cited around the ¥109.20/ 108.90 levels. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥133.50 level and was capped around the ¥134.45 level. The British pound and Swiss franc both depreciated vis-à-vis the yen as the crosses tested bids around the ¥196.75 and ¥86.00 figures, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar today as the greenback closed at the CNY 8.1056 level, up from Friday’s close of CNY 8.1047. People’s Bank of China today raised the ceiling on one-year U.S. dollar and one-year Hong Kong dollar deposits by 0.375%, the second such increase in around one month. This means the ceilings will be 2.0% and 1.875%, respectively. The move is seen as an attempt to counter speculation about possible additional moves in the yuan’s valuation. Hot money inflows are a major problem for China with one bank estimating that China’s foreign exchange reserves rocketed 54% y/y last month to US$ 744.6 billion in what would be the largest increase ever. In trade news, China indicated it is hopeful it will negotiate a final agreement with the U.S. over the countries’ brewing textiles trade dispute before the end of August.
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8045 level and was supported around the $1.7945 level. Stops were reached above the $1.7995 and $1.8030 levels. Many dealers believe sterling will remain bid following the recent hawkish Bank of England quarterly inflation report and unexpectedly close 5-4 vote in favour of lower interest rates this month, signaling that further monetary expansion is unlikely at this time. It will be a relatively quiet week on the U.K. data front. Cable offers are cited around the $1.8065/ $1.8105 levels. The euro moved higher marginally vis-à-vis the British pound as the single currency tested offers around the £0.6790 level.
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2670 level and was capped around the CHF 1.2755 level. Stops were hit below the CHF 1.2690 level, representing the 23.6% retracement of the move from CHF 1.2430 to CHF 1.2770. Dollar bids are cited around the CHF 1.2640/ 00 levels. The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5530 and CHF 2.2925 levels, respectively.
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