Wednesday October 26, 2005 - 14:50:33 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (26 October 2005)
The euro retraced much of its intraday losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2050 level and was capped around the CHF 1.2135 level. Today’s high is about ten pips above a short-term technical resistance level that represents the 76.4% retracement of the move from $1.2000 to $1.1875. The common currency scored major gains yesterday and it remains to be seen if the dollar’s fortunes have taken a turn for the worse or if dollar bulls are simply shaking out some weaker dollar longs before resuming their march higher. All eyes will be on Federal Reserve Chairman Greenspan who is scheduled to speak at 1745 GMT. Greenspan is unlikely to discuss monetary policy or this week’s appointment of former Fed Governor Bernanke as his successor because the Federal Open Market Committee will deliberate monetary policy on Tuesday. Most traders expect the Fed will tighten monetary policy by 25bps. The big item on the dollar’s docket this week is the advance Q3 GDP report on Friday. Real GDP is expected to have advanced 3.8% in Q3 but these data will notably not include the impact of hurricanes Katrina and Rita. In eurozone news, European Central Bank member Weber yesterday said the central bank is closely monitoring for inflation dangers and added prices pressures are “noticeably” higher. This is the latest hawkish statement that evidences the current hawkish stance of the ECB. EMU-12 interest rate futures are currently pricing in a 60% chance the ECB will tighten policy in December. Data released in the eurozone today saw Italian September hourly wages climb 0.3% m/m and 3.1% y/y while French unemployment fell to 9.8% last month. Euro offers are cited around the $1.2165/ 1.2245 levels.
The yen lost sizable ground vis-à-vis the yen today as the greenback tested offers around the ¥115.80 level and was supported around the ¥114.90 level. Many dealers believe this may be the dollar’s lunge higher that pushes the pair through the psychologically-important ¥116.00 figure. Options traders have reported many protective offers below the figure and these have capped the pair in recent sessions. The pair, comparatively, had a much easier time taking out the ¥115.00 figure, arguably a more psychologically-important level. Technically, the ¥116.45 level represents the 61.8% retracement of the move from ¥121.65 to ¥101.65. Data released in Japan today saw Japan’s trade surplus recede further in September for the sixth consecutive month on account of escalating oil prices. The measure was off 21.6% y/y and this follows a 79.7% y/y decline in August. In the first six months of Japan’s fiscal year that began in April, Japan’s trade surplus was off a total 33.1% y/y to ¥4.06 trillion as imports soared 15.5% to a record ¥28.4 trillion. These data, of course, reflect the impact of the global spike in energy prices. Japan’s trade deficit with China ballooned 53.7% to -¥1.55 trillion between April and September. Other data released in Japan today saw the September corporate services price index climb 0.3% m/m and fall 0.6% y/y, the 60th consecutive monthly decline. The Nikkei 225 stock index climbed 0.86% to close at ¥13,395.02. Dollar bids are cited around the ¥115.25 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥139.80 level and was supported around the ¥139.10 level. Dealers cited buying activity on the cross from Japanese institutional players looking to purchase EMU-12 bonds. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥205.60 and ¥90.30 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at the CNY 8.0867 level, down from 8.0901. People’s Bank of China today said “As China's economy continues to be strong, in the long run the appreciation of the yuan will be the tendency.” PBOC Deputy Governor Wu Xiaolin today said the central bank has no plans to widen the yuan’s trading band against the dollar this year. Data released in China today saw industrial firms’ profits climb 20.1% in the January – September period. The State Administration of Foreign Exchange released a report today that said balancing international payments is a goal of the Chinese government in the next five years.
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around $1.7730 level and was capped around the $1.7865 level. Technically, today’s low was just below the 61.8% retracement of the move from $1.7270 to $1.8495. Bank of England Governor King testified yesterday and said additional monetary easing is not likely to be the central bank’s next policy move. He also predicted the U.K. economy will likely face a “bumpier ride” over the next couple of years. Data released in the U.K. today saw the CBI’s October industrial trends survey report weak orders and sagging confidence. The total order book balance printed at -25 this month, marginally better than last month’s -27 level and the output balance worsened to +2 from +6. These data are important because the manufacturing sector accounts for some 17% of economic activity in the U.K. and the sector is unlikely to be a positive addition to U.K. GDP. Cable offers are cited around the $1.7885 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.6805 level and was supported around the £0.6780 level.
The Swiss franc lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2835 level and was supported around the CHF 1.2730 level. The pair traded about 30 pips below a technical support level that represents the 23,6% retracement of the move from CHF 1.1735 to CHF 1.3080. Dealers continue to watch the Swiss franc because there is an increasing sense of risk aversion related to heightening political and geopolitical uncertainties around the globe. Dollar bids are cited around the CHF 1.2700 figure. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5480 level while the British pound weakened vis-à-vis the Swiss franc and tested bids around the CHF 2.2720 level.
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