Friday November 25, 2005 - 16:03:25 GMT
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Forex Market Commentary and Analysis (25 November 2005)
The euro continued its move lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1740 level and was capped around the $1.1790 level. Stops were triggered below the $1.1765/ 60 level, representing the 23.6% retracement of the move from $1.2170 to $1.1640. The common currency has been offered ever since it tested offers around the $1.1860 level, the 23.6% retracement level of the move from $1.2590 to $1.1640. The pair lost ground today after the release of weaker-than-expected German inflation data saw provisional German consumer price inflation decline 0.5% m/m and up 2.3% y/y. These data were below forecast and even though annualized inflation is above the European Central Bank’s 2.0% ceiling threshold, they will ignite comments from Ecofin policymakers who do not want the ECB to tighten monetary policy next month. Final German November CPI data will be released in mid-December, after the ECB’s rate meeting. The euro also went offered today after European Union policymakers failed to reach an accord on a budget deal for the 25-member bloc for 2006. Liquidity is greater than it was yesterday but is still reduced during the North American session on account of yesterday’s Thanksgiving holiday and a long weekend taken by some traders. November U.S. non-farm payrolls data will be released next week and they will closely be watched by market participants. The general consensus is that the Federal Open Market Committee will raise the fed funds target rate by 25bps to 4.25% in December followed by another hike at the end of January. The big question on traders’ minds is what Fed policymakers will do on 28 March. Minutes from the FOMC’s most recent interest rate deliberations revealed some debate as to whether the Fed was nearing an end to its current tightening cycle. Euro offers are cited around the $1.1760/ 1.1840 levels.
The yen extended recent losses vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥119.45 level and was supported around the ¥118.80 level. Stops were triggered above the ¥119.00/ 20 levels, representing short-term resistance levels related to this week’s pullback from the ¥119.50 level. As expected, consumer price inflation data were released in Japan overnight and evidenced a core nationwide October CPI that was unchanged y/y while Tokyo-area November core CPI was off 0.3%, the most recent indication that deflation remains problematic in the Japanese economy. It was also reported that the October corporate services price index was up 0.4% m/m, the third increase in five months. The big news on the inflation front overnight was a report the government will change the way it tabulates inflation with the likely result greater downward pressure on prices. Chief Cabinet Secretary Abe said it is clear deflationary pressures persist while government minister Takenaka said Bank of Japan and the government should jointly decide on when to unwind the former’s long-standing quantitative easing monetary policy. The Nikkei 225 stock index gained 0.3% to close at ¥14,784. Dollar bids are cited around the ¥119.00 and 118.70/ 20 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥140.60 level and was supported around the ¥140.05 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥205.65 and ¥90.90 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0815, up from CNY 8.0805. The big news out of China today was a report that People’s Bank of China conducted its first-ever currency swap today, a swap of US$ 5 billion for CNY 40 billion with about ten banks. It was also reported the State Administration of Foreign Exchange launched a yuan market-making system against foreign currencies. China’s government reported it expects GDP to expand 8.6% next year with CPI up around 1.7% and the M2 money supply growing around 14.6%.
The British pound tumbled lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7170 level and was capped around the $1.7235 level. Technically, today’s intraday high and low were right around the 38.2% and 23.6% retracement of the move from $1.7520 to $1.7065, respectively. Data released in the U.K. today evidenced further stabilization in the U.K. housing sector. BBA reported net mortgage lending rose an underlying £4.3 billion in October while mortgage approvals were up 7.0% y/y. Other data released today saw Q3 gross domestic product upwardly revised to +1.7% from +1.6% while quarter-on-quarter growth was unrevised at 0.4%. This means the U.K. economy expanded below its long-term trend rate of growth for the fifth consecutive quarter. One consequence is that Chancellor of the Exchequer Brown will likely reduce his economic projections in the pre-Budget report statement he gives on 5 December. Cable offers are cited around the $1.7190/ $1.7225 levels. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.6825 level and was capped around the £0.6845 level.
The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3210 level and was supported around the CHF 1.3130 level. The pair briefly traded above the CHF 1.3195/ 1.3200 level – representing the 61.8% retracement of the move from CHF 1.3285 to CHF 1.3060 – before coming off. Data released in Switzerland today saw the November KOF economic barometer improve to 1.12 from a revised 1.01 in October, significantly above forecasts. These data reinforce the notion the Swiss National Bank will tighten monetary policy next month at the central bank’s year-end economic assessment. Dollar bids are cited around the CHF 1.3160/ 10 levels. The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5455 and CHF 2.2605 levels, respectively.
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