Friday October 21, 2005 - 14:37:40 GMT
Share This Story
GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (21 October 2005)
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2075 level and remained supported around $1.2000 figure. Comments from Federal Reserve officials continue to be hawkish and suggest the Federal Open Market Committee will not deviate at this time from its current monetary tightening cycle. Richmond Fed President Lacker alluded to the spike in oil prices in the 1970s and said errant Fed policy was responsible for letting inflation accumulate and then cause a recession – an indication he supports additional rate hikes. Atlanta Fed President Guynn added “(The Fed’s) gradual course has been far preferable to pausing and risking more drastic – and painful – moves later.” FOMC policymakers will next convene on 1 November and are likely to tighten the federal funds rate by 25bps. Some traders, however, are noting the greenback is failing to make new advances despite the continued hawkish rhetoric of FOMC officials. This could evidence a concern by some that continued Fed tightening could be slowing U.S. economic growth. Data released in the U.S. yesterday saw the October Philadelphia Fed survey confirm factory activity is improving but also reported that 33% of firms see higher prices for goods, up from September’s 22% level. In eurozone news, European Central Bank Chief Economist Issing talked today and said the inflationary outlook in the eurozone is uncertain. ECB member Gonzalez-Paramo also spoke today and said there is no evidence that higher oil prices are having second-round effects. Euribor interest rate futures are currently pricing in about a 40% change the ECB will hike interest rates by +25bps in December. The ECB has kept borrowing costs unchanged for more than two years now. Germany’s government today announced it is reducing its 2006 GDP forecast to 1.2% from 1.6% on account of oil prices. Germany’s Bundesbank is reporting that Germany’s economy is likely to show “upward movement” in Q3. Dealers are also keeping tabs on the price of oil as the NYMEX December crude oil futures are trading below the psychologically-important $60.00 figure despite the pending arrival of hurricane Wilma. Euro offers are cited around the $1.2085 level.
The yen was little-changed vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥115.60 level and was supported just below the ¥115.00 figure. Some dealers are citing the pair’s inability to move through the ¥116.00 figure as evidence the market is getting ready to pullback, perhaps to a ¥114 handle. Technically, the ¥114.80/ 55/ 25 levels remain areas of support ahead of the ¥113.70 level. Finance minister Tanigaki countered Bank of Japan Governor Fukui’s remarks from yesterday overnight when he said “Mild deflation still continues in Japan...it is undesirable that interest rates rise alone, which has negative effects on the economy.” Notably, the yield on the government’s main ten-year JGB reached 1.585% yesterday, around a one-year high and evidence the market continues to price in higher rates. The MoF and BoJ remain at odds about the eventual unwinding of the central bank’s long-standing quantitative easing policy. Tanigaki also spoke about exchange rates, saying “speculative currency moves are undesirable” while MoF’s Hosokawa yesterday said exchange rate fluctuations “should reflect fundamentals.” Data released in Japan overnight saw the August tertiary index improve 1.7% m/m. In other BoJ news, the media is reporting the central bank will release a forecast that sees core CPI expanding 0.4% y/y in the fiscal year to March 2007 when its next estimates are released on 31 October. The Nikkei 225 stock index climbed 0.07% to close at ¥13,199.95. Dollar bids are cited around the ¥115.10/ 114.60 levels. The euro gained ground vis-à-vis the yen as the single currency tested offers around the ¥139.05 level and was supported around the ¥138.45 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥205.15 and ¥89.90 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0885, down from CNY 8.0905. Data released in China today saw September production material prices rise 6.2% y/y. China’s foreign exchange regulator, the State Administration of Foreign Exchange, announced it is tightening its rules to reduce speculative inflows from abroad.
The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers just below the US$ 1.7800 figure and was supported around the $1.7725 level. Sterling’s gains were limited by Q3 U.K. GDP data that saw a 0.4% q/q climb in economic growth, in-line with forecasts. These data, however, means the British economy has expanded at below-trend growth for five successive quarters. On an annualized basis, the economy expanded at 1.6%. Most dealers believe Bank of England’s Monetary Policy Committee will not ease policy next month, especially given recent comments from MPC officials and mixed U.K. economic data. Short sterling interest rate futures are not pricing in any change in monetary policy at this time. Cable offers are cited around the $1.7815 level. The euro was largely unchanged vis-à-vis the British pound as the single currency tested offers around the £0.6790 level and remained supported around the £0.6765 level.
The Swiss franc moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2805 level after encountering offers around the CHF 1.2885 level. Swiss National Bank President Roth spoke yesterday and warned the SNB’s monetary policy may be too loose, given the “improvement” in the domestic economy. Roth said “The inflation forecast that we published in September...clearly indicates that the present level of short-term interest rates will not permit to contain inflation below 2% in the mid-term.” Roth also noted the markets are “attaching an increased probability of a future tightening of monetary conditions.” He also indicated the central bank sees full-year 2005 GDP around 1% and climbing as high as 2% next year. Many dealers believe the SNB will raise interest rates in December at its year-end news conference. Dollar bids are cited around the CHF 1.2820 level. The euro and British pound slumped vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5440 and CHF 2.2780 levels, respectively.
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."