Monday October 24, 2005 - 11:35:19 GMT
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Forex Market Commentary and Analysis (24 October 2005)
The euro moved marginally lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1920 level and was capped around the $1.1955 level. The big item on the agenda this week for traders is the release of Q3 U.S. GDP data on Friday. Many forecasts are predicting economic expansion of 3.8% for last quarter in the world’s largest economy but these data will not incorporate much of the financial and economic devastation of hurricanes Katrina and Rita. Thus, revised Q3 data are likely to be of greater interest to traders. Market participants are also preparing for next Tuesday’s Federal Open Market Committee meeting. The consensus is the Fed will tighten monetary policy by +25bps and retain its long-standing “measured pace” mantra. Another +25bps hike in rates in December is deemed probable at this time. Data released in the eurozone today saw EMU-12 August industrial orders off 0.1% m/m and up 7.5% y/y. Data scheduled for release tomorrow include Germany’s Ifo business confidence survey. Other data due this week include Germany’s GfK consumer sentiment survey and business confidence surveys in France and Italy. It will be interesting to see how these data compare with U.S. consumer confidence data scheduled for release tomorrow. Confidence amount U.S. consumers plunged last month on account of higher energy prices and the hurricanes. One main question on traders’ minds at this time is when the European Central Bank will tighten policy. ECB Chief Economist Issing was hawkish on Friday, indicating policymakers have to be “extremely vigilant” against inflation. ECB President Trichet, however, tempered Issing’s remarks saying interest rates are now “appropriate.” Other EMU-12 data released today saw the August current account deficit expand to -€6.6 billion from -€4.7 billion in July. A retreat in oil prices to the $59 handle is also benefiting the dollar today as crude futures have today traded at their lowest level since 28 July. Euro offers are cited around the US$ 1.2030 level.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥115.50 level after encountering offers around the ¥115.95 level. The yen was bid of most of its crosses today as traders continued to ponder the inevitable unwinding of Bank of Japan’s long-standing quantitative easing policy. Most dealers believe the central bank will not amend its policy until H1 2006 but continued public spats between BoJ and the government have led some to believe a move could come before the end of 2005. Data released in Japan overnight saw September department store sales rise 0.8% y/y to ¥560.9 billion, the fifth increase in 25 months, while September supermarket sales were off 1.9% y/y, the 22nd decline in 23 months. Consumer spending data are important because consumption accounts for 55% of Japanese economic output. Dealers are also monitoring IMM data as last week’s report confirms that short yen positions are at or near their highest level since May 1999, possibly setting the stage for a sizable retracement with the yen moving higher. The Nikkei 225 stock index lost 0.71% today to close at ¥13,106.18. Dollar bids are cited around the ¥115.20/ 114.70 levels. The euro weakened vis-à-vis the yen as the single currency tested bids just below the ¥138.00 figure after running out of steam around the ¥138.45 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥204.15 and ¥89.30 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at the CNY 8.0916 level, up from CNY 8.0885. People’s Bank of China monetary policy committee member Yu Yongding today said further yuan appreciation is inevitable but added “gradual” appreciation is best. Yu also indicated the U.S. dollar’s weighting in China’s reference basket of currencies for the yuan should be reduced.
The British pound was little-changed vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7695 level and was supported around the $1.7645 level. Property website Hometrack reported that U.K. house prices declined 0.1% this month, the sixteenth consecutive month of lower house prices. The dollar received a little bit of a boost when it was reported that U.S. auto giant General Motors may shed its financial unit for US$ 15 billion; a British financial institution is said to be interest. The lingering question on traders’ minds is whether or not Bank of England’s Monetary Policy Committee will ease interest rates next month. A recent less-than-dovish speech from BoE Governor King, stabilizing house prices, and a unanimous 9-0 vote to keep interest rates unchanged in October are probably working against any policy shift next month. Cable offers are cited around the $1.7720 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.6750 level and was capped around the £0.6765 level.
The Swiss franc lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2950 level and was supported around the CHF 1.2905 level. Swiss National Bank President Roth speaks on Thursday and his remarks will be closely scrutinized because he recently began to make the case for higher interest rates in Switzerland. On Friday, the October KOF leading indicator will be released along with the government’s latest economic forecasts. Dollar bids are cited around the CHF 1.2920 level. The euro was flat vis-à-vis the Swiss franc as the single currency orbited the CHF 1.5440 level while the British pound moved higher vis-à-vis the Swiss franc as sterling tested offers around the CHF 2.2885 level.
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