Wednesday November 30, 2005 - 14:50:31 GMT
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Forex Market Commentary and Analysis (30 November 2005)
The euro lost ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1750 level and was capped around the $1.1795 level. The big news for the common currency will be tomorrow’s European Central Bank Governing Council meeting in which policymakers are largely expected to lift the official main refinancing rate by 25bp to 2.25% in what would be the ECB’s first monetary tightening in years. Eurogroup president Juncker today said a moderate ECB move “will not kill” growth while ECB member Bini Smaghi reported the central bank may move tomorrow. If the ECB tightens as expected tomorrow, focus will shift to future meetings and dealers will continue to assess whether or not this is the beginning of a tightening cycle or a one-off event. In contrast, the Federal Reserve has been tightening monetary policy for more than one year and traders believe the Fed will raise U.S. interest rates next month and in late January. The 28 March 2006 Federal Open Market Committee meeting remains an unknown in many traders’ minds. Data released in the U.S. today saw Q3 GDP growth upwardly revised to 4.3% from 3.8%, stronger-than-expected. More spending on nondurable goods, home investment, and business investment contributed to the gains. Also of importance, the core personal consumption expenditures price index was downwardly revised to 1.2% from 1.3%. Other U.S. data released today saw Q3 corporate profits recede 3.4% on account of the recent hurricanes in the U.S. and the Fed’s Beige Book will be released later today. The November U.S. non-farm payrolls report will be released on Friday and will evidence the most recent labour market conditions. In eurozone news, Q3 GDP data were released and saw the EMU-12 economy expand 0.6% q/q and 1.6% y/y, signifying the economic expansion accelerated to its fastest pace in more than one year. Also, it was reported that harmonized provisional EMU-12 inflation receded to an annual rate of 2.4% in November, still above the central bank’s 2.0% ceiling target. German October machinery, plant, and new orders were up 18% y/y while the November EMU-12 economic sentiment and business climate indicators worsened month-on-month. Euro offers are cited around the $1.1840/ 1.1905 levels.
The yen came off marginally vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥119.80 level and remained supported around the ¥119.25 level. Technically, today’s intraday low was right around the 38.2% retracement of the appreciation from ¥118.20 to ¥119.90. The big news in Japan overnight was a comment from Bank of Japan Deputy Governor Iwata who was quoted as saying annual inflation of one per cent is required to ensure deflation is beaten. This comment is noteworthy because the main criterion for the unwinding of BoJ’s long-standing quantitative easing policy is a return to positive inflation. It is not known if Iwata’s comment represents a new position from the central bank or if he was expressing his personal opinion. If the former, it suggests the central bank may be capitulating to the government’s recently heightened campaign to delay the end of the unorthodox monetary policy for as long as possible. If BoJ enshrines this as a policy decision, it will likely delay the end of the quantitative easing policy and could be yen-negative as official Japanese interest rates would remain lower for longer. Data released in Japan today saw October housing starts rise 9.1% y/y while other data saw orders received in October by the 50 largest Japanese contractors climb 0.6% y/y. The government reported in did not intervene in the foreign exchange market between 28 October and 28 November and this means monetary authorities have not overtly sold yen for some twenty months or so. The Nikkei 225 stock index lost 0.37% to close at ¥14,872.15. Dollar bids are cited around the ¥119.05/ ¥118.60 levels. The euro wandered lower vis-à-vis the yen as the single currency tested bids around the ¥140.60 level and was capped around the ¥140.95 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥206.55 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥90.70 level. In Chinese news, People’s Bank of China reported the 21 July yuan revaluation will decelerate growth in China’s foreign exchange reserves and cause some dollar selling. Also, PBOC noted it will be “normal” for the U.S. dollar/ yuan exchange rate to print below 8.0.
The British pound notched solid gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7285 level and was supported around the $1.7160 level. Technically, today’s intraday high is right around the 50% retracement of the move from $1.7515 to $1.7045. The pair nearly retraced all of yesterday’s losses despite the release of weak GfK consumer confidence data for November today that saw confidence at its lowest level since March 2003 at -8. This report defied expectations of a slightly better result and may not bode well for the crucial holiday shopping period in the U.K. Bank of England’s Monetary Policy Committee is largely expected to keep monetary policy unchanged for the next several months and dealers are curious to see how this will impact the U.K. housing market which has recently stabilized according to most reports. Cable offers are cited around the $1.7335/ 1.7405 levels. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.6810 level and was capped around the £0.6855 level.
The Swiss franc was little-changed vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3180 level and was supported around the CHF 1.3115 level. Technically, today’s intraday high is right around the 61.8% retracement of the move from CHF 1.3285 to CHF 1.2990. Data released in Switzerland today saw the November consumer price index fall 0.3% m/m and climb 1.0% y/y. Q3 FDP and November manufacturing PMI data will be released tomorrow. Most traders expect Swiss National Bank to raise interest rates in a couple of weeks when policymakers convene. Dollar bids are cited around the CHF 1.3105/ 1.3060 levels. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5490 and CHF 2.2735 levels, respectively.
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