Monday October 10, 2005 - 14:17:56 GMT
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Forex Market Commentary and Analysis (10 October 2005)
The euro shed some recent gains vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2060 level and was capped around the $1.2150 level. The common currency came off as traders debated news that Germany’s chancellorship has gone to Christian Democratic Union leader Angela Merkel. Former chancellor Gerhard Schroeder and his Social Democratic Party ceded the top slot in the government but will retain key portfolios including the finance, foreign, justice, and labour ministries as part of a “grand coalition.” Traders are therefore questioning how much has really changed in Germany and whether or not this broad coalition will be able to enact and pass key reform measures or whether Germany will continue to be mired in years of sub-par growth. The common currency gained some ground last week when European Central Bank President Trichet signaled the central bank is becoming increasingly hawkish. Eventually, after the Federal Reserve ends its current monetary tightening cycle, focus will shift more heavily to the ECB as it is probable that EMU-12 interest rates will have to increase by 225 or 250 bps before they equilibrate with U.S. interest rates. This could pressure the U.S. dollar and support the common currency. Trichet today repeated his call that eurozone countries need to reform their economies or suffer from slower growth. Another story that dealers are watching is the bankruptcy of U.S. automotive company Delphi that was announced on Saturday, representing the largest bankruptcy in U.S. automotive history. Data released in the eurozone today saw the German August trade surplus print at €11.6 billion, down from July’s revised surplus of €14.5 billion. Euro offers are cited around the $1.2160 level.
The yen moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥114.25 level and was supported around the ¥113.55 level. Japanese financial markets were closed today for a holiday and shall reopen overnight. The pair remains about fifteen pips shy of testing fresh multi-month highs just below the ¥114.50 level, an area where offers are said to be in place related to options activity. The September economy watchers’ survey will be released tomorrow followed by September consumer confidence and Bank of Japan’s monthly report on Wednesday. Other data will be released later this week including the September consumer goods price index and these data may reveal a further deceleration in deflationary pressures. Notably, International Monetary Market data indicates speculators have accumulated their largest net short yen futures position since May 1999. Dollar bids are cited around the ¥113.40/ 112.65 levels. The euro came off marginally vis-à-vis the yen as the single currency tested bids around the ¥113.75 level after encountering offers around the ¥138.25 level. The British pound moved marginally higher vis-à-vis the yen as sterling tested offers around the ¥200.55 level while the Swiss franc moved lower vis-à-vis the yen as the pair tested bids around the ¥88.80 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at the CNY 8.0864 level, down from CNY 8.0876. Data released in China today saw the September consumer confidence index print at 94.3, down from June’s 94.6 level.
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7535 level after encountering offers around the $1.7630 level. Stops were triggered below the $1.7575 level and the pair is about 30 pips away from establishing fresh multi-week lows. Data released in the U.K. today saw September raw materials price index decline in September while output prices escalated above forecast. Also, ODPM house prices remained steady in August with annual house price inflation at 2.8%, down from July’s 4.0% pace. Cable offers are cited around the $1.7615 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.6875 level.
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2850 level and was supported around the CHF 1.2750 level. International Monetary Market data indicates net short positions in Swiss franc futures are at their highest level since May 1999. On the monetary policy front, most traders believe Swiss National Bank may tighten policy by the end of the year. Dollar bids are cited around the CHF 1.2760 level. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5490 level while the British pound gained ground vis-à-vis the Swiss franc and tested offers around the CHF 2.2540 level.
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