Wednesday December 7, 2005 - 18:07:26 GMT
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Forex Market Commentary and Analysis (7 December 2005)
The euro extended recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1705 level and was capped around the $1.1805 level. Technically, the common currency’s failure to hold the $1.1760/ 65 level – the 23.6% retracement of the move from $1.2170 to $1.1640 – is bearish. There was a dearth of new economic data or news in the eurozone and U.S. today. On the fiscal front, only four of 25 member states from the European Union are supporting the U.K.’s budget proposal for the EU from 2007. The U.K. holds the rotating six-month EU presidency for another couple of weeks and the U.K. is desperately trying to put forth a budget deal for 2007 – 2013 that the EU can agree to. Data released in the U.K. today saw Challenger planned layoffs escalate 22% last month to 99,279. German October industrial production data will be released tomorrow followed by U.S. weekly initial jobless claims. University of Michigan consumer sentiment data will be released in the U.S. on Friday and will be closely watched by economists to gauge the mentality of U.S. holiday shoppers. Euro offers are cited around the $1.1840 level.
The yen lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥121.15 level and was supported around the ¥120.55 level. Bank of Japan Policy Board member Haru spoke about monetary policy overnight and said the central bank may need to reduce its reserve target range before it ends its long-standing quantitative easing policy. Haru also said there is a strong possibility the central bank will move to an interest rate target in the year to March 2007. BoJ Governor Fukui met with Prime Minister Koizumi today and the two discussed deflation. Over the past couple of months, the central bank has adopted an increasingly dovish tone with regard to interest rates and has questioned the BoJ’s independence. News of today’s meeting is important because it suggests there may have been a thaw in the icy relations between the government and central bank. In fact, Koizumi today said it is now premature for the central bank to end its quantitative easing policy. Data released in Japan today saw the October leading index improve to 80.0 from 45.5 in September. The Nikkei 225 stock index gained 0.40% to close at ¥15,484.66. Dollar bids are cited around the ¥120.20/ ¥119.85 levels. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥141.55 level and was capped around the ¥142.55 level. The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥209.15 and ¥92.60 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0771, down from CNY 8.0880. Another government estimate was released today that sees GDP up 8.5% to 9.0% in 2006. In other Chinese news, People’s Bank of China announced it is suspending part of its regular weekly open market operations. Some traders believe this may reflect the central bank’s concern with the speed at which interbank interest rates are climbing.
The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7290 level and was capped around the $1.7430 level. Technically, the pair was supported just above the 50% retracement of the move from $1.7520 to $1.7045. Data released in the U.K. today saw NIESR estimate that U.K. GDP expanded 0.4% in the three months to November from the previous three months, well below trend growth levels. Also, IDS reported U.K. pay deals are mostly contained in advance of upcoming January wage negotiations while BRC indicated its November shop price index grew 0.43% m/m. Additionally, Nationwide reported its consumer confidence index improved to a four-month high. Cable offers are cited around the $1.7405 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the £0.6750 level and was capped around the £0.6775 level.
The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3160 level and was supported around the CHF 1.3040 level. Technically, today’s high was right around the 23.6% retracement of the move from CHF 1.2760 to CHF 1.3285. Data released in Switzerland today saw the November jobless rate remain unchanged at 3.7%. Most traders expect Swiss National Bank to tighten monetary policy when the central bank convenes this month. Dollar bids are cited around the CHF 1.3085/ 1.3020 levels. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5385 level while the British pound moved higher vis-à-vis the Swiss franc as sterling tested offers around the CHF 2.2800 figure.
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