Thursday June 24, 2004 - 14:16:31 GMT
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Forex Market Commentary and Analysis (24 June 2004)
The euro climbed higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2165 level after finding good demand around the $1.2100 figure during a brief pullback in early North American dealing. A couple of events conspired to push the euro higher today. Firstly, an explosion was reported near a hotel where President Bush will stay this weekend in Ankara. Secondly, weaker-than-expected U.S. economic data were released today that saw weekly initial jobless claims gain 13,000 to 349,000 with continuing claims moving higher. Also, May durable goods orders were off 1.6% with the ex-transportation sub-index off 0.7%. These data set are typically a volatile series but they prompted dollar sales across the board. Traders now await the release of final Q1 U.S. GDP tomorrow along with existing home sales and final June University of Michigan consumer sentiment. Options traders note an option barrier around the $1.1950 level with a large $1.2100 maturity at 1400 GMT today. Data released in the eurozone today saw some German states’ CPI in-line with expectations while Italy’s trade balance improved last month. Some eurozone-watchers believe the German CPI data will have a downward effect on EMU-12 retail price inflation. France’s finance ministry said it will use its “budget leeway” to reduce its deficit and “do everything to respect” the 3.0% deficit ceiling target in 2005. ECB’s Padoa-Schioppa said the eurozone’s economic recovery is “consolidating” but remains weak. Euro bids are cited around the $1.1990 level.
The yen gained substantial ground vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.10 level after peaking around the ¥108.60 level. Sharp moves lower transpired in European dealing as major stops were hit below the ¥107.50 level, an area where an option barrier had been reported. Stronger-than-expected Japanese economic data were an impetus that precipitated yen buying. It was reported that the April tertiary sector activity index and all-industries activity index were up 2.2% m/m and 2.3% m/m, respectively. Also, the MoF’s Quarterly Business Survey was released overnight and it saw a climb in the April – June big firms’ sentiment index to +7.2 with a forecast of +12.2 for the July – September time frame. Additionally, Japanese firms see FY 2004/2005 capital spending up +6.4% and recurring profits up +9.7% y/y. Japanese capital flows for the five trading days ending 18 June saw foreign investors as net buyers of Japanese equities as total net yen inflows were estimated at ¥286.3 billion during the period. Dealers reported stops were earlier hit below the ¥108.30 level. MoF’s Mizoguchi verbally intervened overnight saying there has not been any change in the relative economic strength of the U.S., Japan, or eurozone. MoF’s Hayashi said the BoJ should maintain an “appropriate policy” and added fighting deflation remains a top priority. The Nikkei 225 stock index gained 1.41% to close at ¥11,744.15. Options traders still cite a DNT with legs at ¥107.50/¥111.50 that expires on 30 June. Dollar stops are cited above the ¥108.50 level. The euro moved higher vis-à-vis the yen today as the single currency tested bids around the ¥130.10 level after major stops were hit below the ¥131.10 level during Australasian dealing. Euro offers are seen around the ¥130.90/ ¥131.10 levels with stops above this area.
The British pound eked out modest gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8190 level after finding good support around the $1.8100 figure during early North American dealing. Cable had a volatile day on account of some of sterling’s cross rates where it lost ground vis-à-vis the A$, euro, Swiss franc, and yen. There were many comments from Bank of England MPC officials in testimony today. Governor King said he sees major uncertainty regarding inflation report forecasts and said the MPC has not abandoned its gradualist approach to monetary tightenings. He added the U.K. will probably not need to raise rates as much as the U.S. needs to and added U.K. economic growth is likely to be above-trend in 2005. MPC’s Tucker said there is “not a great deal of slack left in the economy” and added rates at 4.5% is probably “mildly stimulative.” Also, MPC’s Barker said house prices are not a “dominant factor” in rate decisions while MPC’s Bell said rate hikes are not intended to “shock” consumers. Traders interpreted the remarks from MPC officials as a signal that rates will not move higher in July. Data released in the U.K. today saw CBI Industrial Trends Survey weaken with the June total orders balance at -6% vs. +1% in May. The volume of output balance also slid this month from May’s level. The euro moved higher vis-à-vis the British pound today as the single currency tested offers around the £0.6695 level after finding bids around the £0.6645 level.
The Swiss franc made major gains vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2385 level after testing offers around the CHF 1.2580 level during Australasian dealing. Major stops were hit below the CHF 1.2550 level during the sell-off and the selling continued uninterrupted through the CHF 1.2445 level. Data released in Switzerland today saw Swiss producer and import prices rise 0.5% m/m in May and +1.4% y/y, mostly on account of the recent rise in oil prices. Swiss National Bank added overnight and one-week liquidity at 0.28% and 0.26%, respectively. An SNB official was on the wires earlier today saying the central bank’s recent rate rise shows the SNB “will continue to conduct an autonomous” monetary policy. The euro came off vis-à-vis the Swiss franc today as the single currency tested bids around the CHF 1.5090 level after peaking around the CHF 1.5190 level.
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