Wednesday November 23, 2005 - 16:01:07 GMT
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Forex Market Commentary and Analysis (23 November 2005)
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1765 level after encountering resistance around the $1.1865 level. Technically, today’s high was right around the 23.6% retracement of the move from $1.2585 to $1.1635. The common currency was energized later in the North American session yesterday following the release of the minutes from the Federal Open Market Committee meeting earlier this month. Some FOMC policymakers cautioned against raising interest rates too much, an indication to some dealers that the Fed’s current tightening cycle may be nearing an end. Policymakers also discussed the statement the Fed releases in tandem with its interest rate decision. Most dealers believe the FOMC will not stop lifting interest rates until its benchmark fed funds target rate is at least 4.50%, 50bps above current levels. The dollar regained some lost ground after Richmond Fed President Lacker indicated inflation remains a risk and intimated it is premature to view the Fed’s tightening cycle as over. Incoming Fed Chairman Bernanke issued some written responses to questions from Senate members and said further appreciation of energy prices “has the potential to spill over into general inflation, sap consumer spending power, and damp overall activity.” Bernanke also indicated he is closely monitoring housing market activity. Many Fed-watchers are already looking forward to 28 March under the presumption the Fed will tighten policy next month and in January by 25bps each time. Data released in the U.S. saw weekly initial jobless claims rise to 335,000 for the week ending 19 November while the University of Michigan’s consumer sentiment index printed at 81.6, up from 79.9 earlier this month and significantly above October’s reading of 74.2. In eurozone news, EMU-12 industrial orders improved 1.1% m/m and 4.6% y/y in September. Traders await comments from European Central Bank Chief Economist Issing later in the session. Some dealers sold the euro after new German finance minister Steinbrueck indicated the new coalition government is unlikely to have a balanced budget by 2009. Traders are also paying attention to chatter that German trade union IG Metall may demand a wage hike of 4% to 5% in 2006. Such talk will surely elicit hawkish commentary from ECB President Trichet. Euro offers are cited around the $1.1840 level.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥118.30 level and was capped around the ¥119.05 level. Stops were hit below the ¥118.50 level, representing the 38.2% retracement of the move from ¥116.80 to ¥119.55. Japanese financial markets were closed for a holiday today and will reopen tonight with the Nikkei 225 stock index poised to retest recent multi-year highs. Bank of Japan Governor Fukui spoke today and reiterated the independence of the central bank following last week’s comments from government officials. Some newer members of Prime Minister Koizumi’s cabinet called into question the BoJ’s ability to make policy independent of the government. This was their latest salvo in trying to delay the central bank’s inevitable unwinding of its long-standing quantitative easing policy as long as possible. Traders will pay close attention to October consumer price inflation data scheduled for release tomorrow night. Any indication that retail prices are moving closer to zero per cent or higher could prompt yen buying as traders will discount a change in BoJ policy. Dollar bids are cited around the ¥118.15/ ¥117.85/ ¥117.45 levels. The euro lost ground vis-à-vis the yen as the single currency tested bids around the ¥139.55 level and was capped around the ¥140.45 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥203.65 and ¥90.05 levels, respectively.
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7175 level and was capped around the $1.7260 level. Minutes from Bank of England’s Monetary Policy Committee meeting this month were released today and they evidenced a unanimous vote to maintain the repo rate unchanged at 4.50%. Policymakers concluded uncertainty regarding the short-term direction of inflation is heightened. Last week’s BoE quarterly inflation report predicted output growth will gradually improve and saw inflation around 2.0% about two years from now. Cable offers are cited around the $1.7240/ 95 levels. The euro came off vis-à-vis the British pound as the single currency tested bids around the £0.6835 level and was capped around the £0.6875 level.
The Swiss franc lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3170 level and was supported around the CHF 1.3060 level. Today’s high was right around the 50% retracement of the recent pullback from CHF 1.3285 to CHF 1.3060. The Swiss November leading indicator will be released on Friday. Most traders believe Swiss National Bank will tighten monetary policy next month at the central bank’s year-end policy meeting. Dollar bids are cited around the CHF 1.3115 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the single currency and sterling tested offers around the CHF 1.5505 and CHF 2.2650 levels, respectively.
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