Thursday November 24, 2005 - 16:20:56 GMT
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Forex Market Commentary and Analysis (24 November 2005)
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1780 level after encountering selling pressure around the $1.1825 level. Technically, today’s intraday low is right around the 38.2% retracement of the move from $1.1640 to $1.1865. The euro went given today after the November German Ifo number was released. It was reported that the business climate index fell to 97.8 from 98.8 in October, below expectations, while the business assessment index and business expectations index also dropped. Most traders do not think the weakened German sentiment data will postpone the probable monetary tightening by European Central Bank on 1 December. ECB member Caruana today said a rise in interest rates would be beneficial for the Spanish economy and added the upcoming tightening cycle is likely to be “relatively moderate.” Caruana also added the “continuation of high oil prices and the possible second-round effect on wages is a highly significant risk for Europe.” ECB President Trichet today said the central bank is not being “alarmist” in signaling a near-term rise in interest rates. In contrast, French finance minister Breton said he does not see any indication that inflation is a problem in France or the eurozone and his comments are representative of the positions adopted by other Ecofin finance ministers. Provisional November German inflation data were released in some states today and they evidenced a pullback in price pressures. Liquidity is limited today on account of the U.S. Thanksgiving holiday. Traders are already looking forward to next weekend’s G7 meeting of finance ministers and central bankers in London. Discussion topics include global interest rates, energy prices, the bird flu, and Fed Chairman Greenspan’s retirement. Euro offers are cited around the $1.1810/ 40 levels.
The yen lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥118.95 level and remained supported around the ¥118.55 level. Technically, today’s intraday low was just above the 38.2% retracement of the move from ¥116.80 to ¥119.55 while today’s intraday high was just above the 23.6% retracement of the same range. Data released in Japan today saw the October trade surplus recede 28.8% y/y to ¥822.15 billion, the seventh successive monthly decline. Japan’s trade deficit with China on October was ¥218.5 billion, up 29.2%. It was also reported that October department store sales were up 0.1% y/y and October supermarkets sales were down 4.6% y/y, the 23rd decline in 24 months. Minutes from the 11 – 12 October Bank of Japan Policy Board meeting were released overnight and policymakers discussed whether or not the consumer price index is the best indicator to measure an end to deflation. Policymakers concluded the nationwide core consumer price index is “projected to be at 0.0% or to show a slight increase towards the end of the year.” The central bank has repeatedly indicated it will begin to unwind its long-standing quantitative easing policy when certain criteria are met including a return to positive consumer price inflation. The Nikkei 225 stock index gained 0.23% to close at ¥14,742.58, just below a recent 52-week high. Foreign investors continue to purchase Japanese equities in massive quantities and Japanese investors continue to purchase significant quantities of foreign bonds. Dollar bids are cited around the ¥118.50/ 20 levels with more bids seen around the ¥117.85 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥139.95 level and was capped around the ¥140.40 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥205.20 level while the Swiss franc weakened vis-à-vis the yen as the Swiss franc tested bids around the ¥90.25 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0805, down from CNY 8.0816.
The British pound edged marginally lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7200 figure and was capped around the $1.7285 level. Sterling was bid during European dealing after Bank of England’s Monetary Policy Committee testified before the Treasury Select Committee. Policymakers made it clear they do not have plans to reduce interest rates at this time, dashing hopes for an easier monetary policy. BoE Governor indicated consumption is picking up while Deputy Governor Lomax indicated the monitoring of pay deals is at the top of her agenda. BoE policymaker Nickell was quoted in the press as suggesting “no further movements in rates will be required.” Similarly, MPC’s Walton said the economic balance of risks are currently more balanced than they were in August when he voted for a “precautionary” cut in interest rates. Data released in the U.K. today saw Q3 business investment up 0.3% q/q and up 1.9% y/y. Cable offers are cited around the $1.7295/ 1.7345 levels. The euro came off vis-à-vis the British pound as the single currency tested bids around the £0.6830 level and was capped around the £0.6860 level.
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3165 level and was supported around the CHF 1.3105 level. Technically, today’s intraday low was right around the 23.6% retracment of the move from CHF 1.3285 to CHF 1.3060 while today’s high was right around the 23.6% retracement of the move from CHF 1.2760 to CHF 1.3285. The Swiss November leading indicator will be released tomorrow. 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 crosses tested offers around the CHF 1.5515 and CHF 2.2705 levels, respectively.
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