Tuesday November 29, 2005 - 14:38:41 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (29 November 2005)
The euro retraced some of yesterday’s solid gains vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1775 level after encountering selling pressure around the $1.1860 level. The pair scored good gains yesterday after the release of weaker-than-expected U.S. existing home sales that made traders question whether or not the Fed’s continued interest rate hikes have stymied the housing market too much. Dealers will get the next read on this issue today when new home sales data for October are released. November consumer confidence data will also be released around the same time. The common currency’s move higher yesterday encountered tough resistance just ahead of the $1.1905 level, the 50% retracement of the move from $1.2170 to $1.1640. Data released in the U.S. today saw headline October durable goods orders print at +3.4%, up from an upwardly revised -2.0% in September. The ex-transportation and ex-defense durable good prints came in at +0.3% and +1.7%, respectively. After today’s data, focus will shift to the European Central Bank ahead of its interest rate decision on Thursday. The ECB is expected to lift its main refinancing rate to 2.25% from 2.00% in what would amount to its first rate hike in a few years. EMU-12 finance ministers continue to voice their opposition to the inevitable monetary tightening. Luxembourg’s Juncker today said a rise in rates “is not absolutely necessary” while Austria’s Grasser said a hike would be a “bad sign” and added “there is no reason to raise rates for now.” Inflation remains stubbornly above the ECB’s 2.0% ceiling threshold and data released today saw EMU-12 M3 money supply grow a less-than-expected 8.0% in October, still significantly above the central bank’s 4.5% reference rate. U.S. November non-farm payrolls data will be released on Friday and will provide dealers with the most recent picture about labour conditions in the U.S. Additionally, central bank bosses and finance ministry chiefs will convene in London at the Group of Seven this weekend along with other global counterparts to discuss contemporary issues. Euro offers are cited around the $1.1800/ 40 levels.
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥119.35 level and was supported around the ¥118.75 level. The pair came off yesterday, hitting stops below the technically-important ¥118.90 level after the release of weaker-than-expected U.S. housing market data. Data released in Japan overnight saw October wage earner’s household spending up 1.3% y/y while the October unemployment rate printed at 4.5%, up from 4.2% in September. Other data released today saw October industrial output climb 0.6% m/m and 3.0% y/y, the third successive month of gains. It was estimated that industrial output will also expand in the first two months of 2006. Earnings data will be released in Japan overnight. Traders are on the lookout for any additional comments from Bank of Japan or government officials regarding the former’s inevitable unwinding of its long-standing quantitative easing policy. The Koizumi administration has upped the pressure on the central bank to postpone the end to its unorthodox monetary policy as long as possible. The current vocal warnings from the government that are directed at the central bank remind dealers of the era when Masaru Hayami was the Governor of the BoJ and regularly endured intervention from the government. The Nikkei 225 stock index lost 0.40% to close at ¥14,927.70. Dollar bids are cited around the ¥118.50/ 117.85 levels. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥140.55 level and was capped around the ¥141.05 level. The British pound and Swiss franc weakened vis-à-vis the yen as sterling tested bids around the ¥205.20 level and the Swiss franc tested bids around the ¥90.75 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at the CNY 8.0796 level, down from CNY 8.0825. Today’s close represents the pair’s weakest level since People’s Bank of China announced a yuan revaluation on 21 July. PBOC issued a new report overnight that said economic developments will dictate when it moves to full yuan convertibility. The Bush administration released a report overnight that concludes China is not a currency manipulator because it took the “initial step” of moving towards a floating currency. The Bush administration urged China to effect further reforms “as soon as possible.” Another government growth estimate was released overnight and predicts Chinese GDP will grow around 9.3% y/y in Q4.
The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7185 level and was capped around the $1.7295 level. The pair notched strong gains yesterday after the release of weaker-than-expected U.S. housing data prompted some long dollar positions to be unwound. The pair moved to the $1.7335 level, right around the 61.8% retracement of the depreciation from $1.7515 to $1.7045. Data released in the U.K. today building society Nationwide house prices unchanged m/m in November following October’s 3.3% climb. This means the annual growth rate has slipped to 2.4% from 3.3%. Bank of England has seemingly effected a soft landing in the all-important U.K. housing sector with its monetary policy. Most traders believe Bank of England’s Monetary Policy Committee will keep interest rates unchanged for the foreseeable future. BoE data released today saw October mortgage lending rise by £7.6 billion while house purchase approvals moved to their highest level since May 2004. The BoE M4 money supply climbed 1.1% m/m and 11.6% y/y in October. Cable offers are cited around the $1.7280 level. The euro came off marginally vis-à-vis the British pound as the single currency tested bids around the £0.6835 level and was capped around the £0.6860 level.
The Swiss franc retraced some of yesterday’s losses vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3170 level after being supported around the CHF 1.3040 level. The pair briefly tested bids below the psychologically-important CHF 1.3000 figure yesterday after the release of the weaker-than-expected U.S. housing market data. Yesterday’s low was right around the 50% retracement of the move from CHF 1.2690 to CHF 1.3285. Swiss November CPI data will be released tomorrow followed by Q3 GDP and November manufacturing data on Thursday. Dollar bids are cited around the CHF 1.3020/ 1.2960 levels. The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5485 and CHF 2.2645 levels, respectively.
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