Monday November 21, 2005 - 14:49:42 GMT
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Forex Market Commentary and Analysis (21 November 2005)
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.1835 level and was supported around the $1.1760 level. Technically, today’s low was right around the 23.6% retracement of the move from $1.2170 to $1.1640 and chartists are eyeing the $1.1840/ 60 levels as the next upside targets. Many dealers believe the holiday-shortened trading week will provide ample opportunities for long dollar bulls to book profits and consolidate recent trading ranges. Fed-watchers will review the Federal Open Market Committee meeting minutes on Wednesday to see if Fed policymakers discussed the eventual end of the current monetary tightening cycle. Some traders believe the euro is bid today following hawkish remarks from European Central Bank President Trichet who on Friday said the Governing Council is ready to decide on interest rates. Trichet will testify before the European Parliament on Friday and could signal his hawkishness further by strongly suggesting a rate hike is in the cards. The question on traders’ minds is when interest rates will be raised. Some believe the ECB could move as early as early December while others foresee a move no later than February. Looking forward, the question on traders’ minds will be how much the ECB will tighten policy relative to where U.S. interest rates will be at that time. Assuming the Fed will raise the fed funds target rate to at least 4.50%, the ECB will have around of 200bps of tightening to conduct to equalize U.S. interest rates, and this may support the dollar. The ECB has not changed its main refinancing rate since June 2003. Germany’s Bundesbank today reported it expects 2005 German GDP growth around 1% in 2005 thanks to a boost in exports in Q3. Data released in the eurozone today saw the September trade surplus print at €1.4 billion compared with a revised deficit of €2.2 billion in August. Euro offers are cited around the $1.1860/ 1.1905 levels.
The yen gained moderate ground vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥118.75 level and was capped around the ¥119.45 level. Stops were triggered below the ¥118.90 level, pushing the pair to intraday lows during European dealing. Japan’s government left its economic assessment unchanged for the third consecutive month in November, reiterating the economy is “recovering at a moderate pace.” Capital spending, exports, private consumption, housing, and industrial production are all cited as improving areas in the Japanese economy. Japan’s economy has expanded for four consecutive quarters and grew 0.4% q/q in the three months to September. Japanese financial markets will be closed on Wednesday in observance of a holiday. The most important data are scheduled for release on Friday when the latest consumer price inflation numbers are reported. One of the main criterion for Bank of Japan to begin to unwind its long-standing quantitative easing policy is a return to positive year-on-year inflation. Most BoJ-watchers expect this will happen in 2006, the first step of a return to normalcy in Japanese monetary policy. The Nikkei 225 stock index gained 0.39% to close at ¥14,680.43. Dollar bids are cited around the ¥118.50/ 20 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥140.70 level and was supported around the ¥140.20 level. The British pound came off vis-à-vis the yen as sterling tested bids around the ¥204.25 level while the Swiss franc appreciated vis-à-vis the yen and tested offers around the ¥90.80 level. The Chinese yuan depreciated marginally vis-à-vis the U.S. dollar as the greenback closed at the CNY 8.0833 level, up from CNY 8.0832. A Chinese government official reconfirmed the economy is to expand more than 9% in 2005 while another official indicated China’s foreign trade will grow more slowly in 2006 on account of trade friction. People’s Bank of Governor Assistant Governor Yi Gang talked about the yuan saying “The market seems to be moving in a stable way and expectations for further appreciation have eased and are starting to show a weakening trend. On the offshore market, discounts on yuan/dollar one-year non-deliverable forwards (NDF) have narrowed, which means market expectations for appreciation have eased.”
The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7240 level and was supported around the $1.7140 level. Stops were triggered above the $1.7190 level, representing the 23.6% retracement of the move from $1.7495 to $1.7095. Chartists are eyeing the $1.7250 level as the pair’s next upside target. Data released in the U.K. today saw real estate property website Rightmove report that U.K. house prices increased 0.8% m/m and 4.0% y/y in October. This report was seconded by the ODPM report released today that saw September house price inflation escalate 3.3% in September. These increases in housing market activity followed Bank of England’s decision to trim interest rates in August. European Commission President Barroso today said “an agreement is possible,” referring to the U.K.’s desire to forge a multi-year budget deal for the European Union before the U.K.’s EU presidency ends next month. Cable offers are cited around the $1.7245/ 95 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.6880 level and was supported around the £0.6850 level.
The Swiss franc moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.3080 level and was capped around the CHF 1.3165 level. Technically, today’s intraday high is right around the 23.6% retracement of the move from CHF 1.2760 to CHF 1.3285 while today’s intraday low is right around the 38.2% retracement of the same range. October trade data will be released in Switzerland tomorrow followed by the November leading indicator on Friday. Dollar bids are cited around the CHF 1.3020 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5500 figure while the British pound came off vis-à-vis the Swiss franc and tested bids around the CHF 2.2515 level.
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