Monday September 26, 2005 - 14:07:00 GMT
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Forex Market Commentary and Analysis (26 September 2005)
The euro extended recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2010 level and was capped around the $1.2065 level. The common currency gapped lower around fifteen pips at the Australasian open and traded at levels not seen since 27 July. Traders moved into dollars after hurricane Rita failed to live up to expectations and seemingly spared major U.S. metropolitan areas like New Orleans and Houston along with the U.S.’s oil-refining capacity in the U.S. gulf region. Crude oil futures backed off and are currently trading with a $63 handle, evidencing satisfaction that U.S. supply chains will not necessarily be interrupted further. All eyes are on Federal Reserve Chairman Greenspan today and tomorrow as he gives speeches. Today’s speech focuses on banking regulation and may not yield any clues about the current state of monetary policy in the U.S. Data to be released in the U.S. this week include tomorrow’s consumer confidence report, Wednesday’s durable goods number, and Chicago PMI on Friday. In eurozone news, European Central Bank member Weber called on Germany to reduce its budget deficit below 3% in 2006. Data were released today that saw the overall EMU-12 government deficit print at 2.7% of GDP in 2004, down from 3.0% in 2003. Notably, however, budget deficits were above the 3.0% ceiling target in Germany, France, Italy, and Greece. Other data released in the eurozone today saw Italian July industry sales up 1.8% m/m while orders were up 3.6%. The German September Ifo index will be released tomorrow and most forecasts are focusing on the 94.0 – 94.5 range for the headline business climate index. Euro offers are cited around the $1.2070/ 1.2105 levels.
The yen appreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥112.20 level and was capped around the ¥112.55 level. The pair’s range was extraordinarily tight as traders tried to assess the impact of hurricane Rita on the oil-refining capacity of the U.S. Dealers also weighed the impact of many Japanese economic data released today. On a positive note, it was reported that the business sentiment diffusion index for leading Japanese companies jumped to 9.7 for the July – September quarter from just 0.9 in the previous three-month period. Improving corporate sentiment such as this reflects improving Japanese business conditions and waning deflation concerns. On a negative note, August department store sales. Also, Japan called on China to pursue a more flexible foreign exchange policy, just days after China announced a technical move that permits non-U.S. dollar currency pairs to trade more in a wider range every day. The Nikkei 225 stock index gained 1.77% to close at ¥13,392.63. Dollar bids are cited around the ¥111.80 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥135.00 figure and was capped around the ¥135.70 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥198.95 and ¥86.65 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0929, up from 8.0910. China countered criticism from some G7 members this weekend saying its U.S. dollar/ yuan trading band “is appropriate at current levels” and repeated it is still aiming for full convertibility of the yuan. People’s Bank of China today announced that China’s 2005 growth rate may be around 9.2% this year and 8.7% in H1 2006. In other news, it was announced that local Hongkong banks will begin to offer non-deliverable yuan forward contracts from November to small and medium-size enterprises and retail customers. The contracts will initially be offered with tenors of one, two, three, six, and twelve months. Non-deliverable forwards were the primary instruments that global banks and investors traded prior to the yuan’s revaluation on 21 July.
The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7700 figure and was capped around the $1.7760 level. The main driver for sterling’s weakness today was an admission by Chancellor of the Exchequer Brown that his 2005 growth forecast of 3.0% to 3.5% will not be reached. Critics of the government’s forecast earlier in the year said the U.K. would not be able to meet it goal and they were proven correct. Brown, however, reiterated that the government’s spending plans remain affordable over the coming years despite lower current growth. Bank of England released a report today that praises its use of fan charts as a “reasonably good guide” to the risks in the U.K. economy. Data to be released in the U.K. today include Q2 GDP on Wednesday followed by lending data and Nationwide house prices on Thursday. Cable offers are cited around the $1.7800 figure. The euro was little-changed vis-à-vis the British pound as the single currency tested offers around the £0.6800 figure and was supported around the £0.6775 level.
The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2960 level and was supported around the CHF 1.2890 level. Technically, the pair has not traded this strongly since 28 July. Swiss National Bank member Hildebrand speaks at 1630 GMT today and the September KOF leading indicator will be released on Wednesday. Dollar bids are cited around the CHF 1.2870 level. The euro and British pound gained marginal ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5575 and CHF 2.2980 levels, respectively.
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