Friday November 4, 2005 - 15:05:16 GMT
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Forex Market Commentary and Analysis (4 November 2005)
The euro erased most of its intraday losses vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.1995 level and was supported around the $1.1920 level. The dollar gave up intraday gains after the release of weaker-than-expected U.S. October non-farm payrolls data that saw 56,000 new jobs created last month, about half of many estimates. The September non-farm payroll total was upwardly revised from -35,000 to -8,000, indicating less impact from hurricanes Katrina and Rita than most economists originally anticipated. Today’s report also contained a statement from the government that warned “job growth was below-trend in some part of the country outside the hurricane zones,” possibly indicating a deceleration in labour market activity in the beginning of Q3. This could reflect a myriad of factors, including higher energy costs that have cut into firms’ ability to hire. The average hourly earnings rate was up +0.5% while the unemployment rate printed at 5.0%. Traders are still talking about outgoing Federal Reserve Chairman Greenspan’s congressional testimony yesterday. Greenspan reported the U.S. economy has maintained “important forward momentum” despite the hurricanes. Greenspan also said the inflation outlook is “uncertain” and warned against a return to 1970s-style inflation. It is abundantly clear to most dealers that Greenspan wants to preserve his legacy as an inflation hawk and that he is probably looking at a federal funds target rate around 4.50%. Fed Vice Chairman Ferguson also spoke yesterday and hawkishly said the Fed must combat against inflation. In eurozone news, German September manufacturing orders were up 2.8% m/m, above forecast, while the EMU-12 September producer price index was up 0.5% m/m and +4.4% y/y, consistent with forecasts. Other data released today saw the EMU-12 September unemployment rate print at 8.4%, down from a revised 8.5% in August. Euro offers are cited around the $1.1985/ 1.2020 levels.
The yen extended recent losses vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥117.80 level and was supported around the ¥117.15 level. Technically, the pair stopped short of testing some key resistance around the ¥118.15 level, representing the 50% retracement of the move from ¥101.10 to ¥135.15. The dollar barreled through the ¥117.00 figure yesterday with little resistance and many stops were triggered, pushing the rate today to its highest level since August 2003. Data released in Japan overnight saw September household spending climb 1.0% y/y and fall 0.4% m/m. These data still evidence less-than-adequate consumption in the short-term and are the latest evidence that deflation remains a problem for the Japanese economy. Still, the 1.0% y/y gain was the first improvement in six months. Dealers are attributing a lot of the dollar’s gains to Japanese investors’ demand for foreign debt. Capital flows data indicate Japanese names purchased ¥699 billion in foreign bonds last week, about double the size of foreigners’ purchases of Japanese equities. The Nikkei 225 stock index gained 1.30% to close at ¥14,075.96. Dollar bids are cited around the ¥117.05/ ¥116.60 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥140.85 level and remained supported around the ¥139.90 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥208.10 and ¥91.25 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at the CNY 8.0856 level, up from CNY 8.0841. People’s Bank of China Governor Zhou spoke about monetary policy today saying “Current price levels are low in general, therefore there is no need to adjust interest rates.” A Chinese government think-tank released a forecast overnight that estimates the domestic economy will have grown around 9.2% this year and around 9.0% next year.
The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7620 level and was capped around the $1.7710 level. Stops were triggered below the $1.7655 level, representing the 23.6% retracement of the move from $1.8945 to $1.7390. Data released in the U.K. today saw Halifax home prices unchanged m/m in October while a separate report indicated individual insolvencies in the U.K. soared to a record high in Q3. Bank of England’s Monetary Policy Committee will meet next week and is not expected to change interest rates at this time. Policymakers must weigh above-target inflation against sub-trend growth. Cable offers are cited around the $1.7725 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.6775 level and was supported around the £0.6740 level.
The Swiss franc lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2945 level and remained supported around the CHF 1.2860 level. Technically, today’s low was just below the 23.6% retracement of the move from CHF 1.2240 to CHF 1.3070. Today’s high represents the pair’s strongest print this week. Swiss National Bank Roth spoke this week and suggested the central bank will probably tighten policy when it convenes next month. Dollar bids are cited around the CHF 1.2875 level. The euro moved marginally higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5445 level while the British pound came off vis-à-vis the Swiss franc as sterling tested bids around the CHF 2.2770 level.
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