Wednesday June 23, 2004 - 15:44:41 GMT
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Forex Market Commentary and Analysis (23 June 2004)
The euro weakened vis-à-vis the U.S. dollar today as the single currency spiked to the US$1.2195 level before quickly shedding more than 100 points and stopping below the $1.2100 figure during North American dealing. Talk of a bomb in New York City filtered through the market and caused stops to be reached above the $1.2150 level during the move higher. Many traders are not in the market now ahead of the FOMC’s interest rate decision in one week. Philadelphia Fed’s Santomero last night said global competition has placed “enormous pressure” on U.S. firms to control costs some Fed sources were on the wires yesterday saying the Fed is hopeful that inflation pressures will ease. Coupled together, these two threads suggest a 25bps rate hike is a fait accompli next week. ECB member Weber today said the ECB should reconsider its policy stance if the employment picture improves in the eurozone while German finance minister Eichel said 2004 GDP could eclipse 1.5%. Data released in the eurozone today saaw French final May HICP at +0.4% m/m and +2.8% y/y while Italian retail sales were up +0.8% y/y in April. The German press reported today that the European Commission is debating a plan that would render the EU’s Growth and Stability Pact more flexible during periods of weaker economic growth. France today said it is committed to a freeze in government spending. In other eurozone news, the European Trade Union Confederation reported the ECB is exaggerating the dangers of second-round inflation. Options traders cite a DNT that rolls off on Friday at 1400 GMT with legs at $1.2050 and $1.2250. Traders cite this as the reason for the euro bids above the $1.2050 level today.
The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥109.30 level before sinking to the ¥108.45 level. Japanese bids were seen around the intraday low from oil importers. MoF’s Watanabe verbally intervened by saying the government will “act as needed” on speculative moves. Watanabe’s verbal intervention is becoming increasingly important because he is expected to become the top MoF spokesman on FX after the July cabinet reshuffle. Data released in Japan overnight saw the May trade surplus widen for the eleventh consecutive month. Japanese exports to China were strong despite China’s recent efforts to slow its economy. The overall May surplus was up 35.5% y/y. Many traders are moving into yen ahead of next week’s quarterly tankan survey of corporate sentiment. The Nikkei 225 stock index was off 0.71% to close at ¥11,580.56. Dollar bids are seen around the ¥108.20 level ahead of option barriers noted at ¥108.00 and ¥107.50. Dollar offers are again cited around the ¥109.20/30 levels. The euro gained additional ground vis-à-vis the yen today as the single currency tested bids around the ¥131.15 level after peaking around the ¥132.40 level during European dealing. Major stops were reached below the ¥131.70 level today during the move lower. Euro offers are seen around the ¥132.50 level. In Chinese news, an economic research center said China’s trade deficit will narrow this year on account of the slower deficit. There was also a reported that power shortages in China are forcing investors to postpone investment plans.
The British pound lost ground vis-à-vis the U.S. dollar today as the cable tested bids around the US$ $1.8140 level after failing to get above the $1.8290 level during the spike higher in European dealing. The sharp move lower was precipitated by the release of minutes from the Bank of England Monetary Policy Committee meeting that saw a unanimous 9-0 vote to raise rates by 25bps at the 9-10 June meeting. The minutes read "For most members the May Inflation Report projections could have warranted a rise of 50 bps at that time.” Traders, however, dumped sterling on the notion that there was little to suggest the central bank would tighten policy again next month. Cable bids are cited around the $1.8125 level. The euro retraced most of its gains vis-à-vis the British pound today as the single currency fell from the £0.6680 level and tested bids around the £0.6640 level.
The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2575 level after finding good bids around the CHF 1.2430 level. Swiss National Bank added one-week liquidity at 0.26% today, up from 0.24% yesterday. Data released in Switzerland saw the country register its 16th consecutive monthly trade surplus. The euro gained ground vis-à-vis the Swiss franc today as the single currency tested offers around the CHF 1.5190 level before backtracking to the CHF 1.5150 level.
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