Friday December 9, 2005 - 15:58:51 GMT
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Forex Market Commentary and Analysis (9 December 2005)
The euro came off marginally vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1765 level and was capped around the $1.1825 level. Technically, today’s intraday low is right around the 23.6% retracement of the move from $1.2170 to $1.1640. The common currency has gained about 100 pips so far this week and moved higher after the release of the University of Michigan’s preliminary December consumer sentiment report that saw an improvement to 88.7 from 81.6 at the end of November, up strongly from September’s bottom of 74.2. Traders are also paring dollar exposure ahead of Tuesday’s Federal Open Market Committee meeting at which Fed policymakers are expected to raise the federal funds target rate by 25bps. Many traders believe the Fed will alter the language it uses in its policy statement away from “removing monetary policy accommodation at a measured pace.” Others believe the Fed will retain that language, possibly signaling further rates increases at the end of January and March. Another item on the radar screens of traders at the moment is the price of gold. The spot price eclipsed the $525 level today, just a few days after breaking through the psychologically-important $500 level. In the past, there has been a strong direct correlation between the price of gold and the euro’s fortunes. Over recent months, however, the euro has weakened while gold has remained solid and this probably reflects’ traders preoccupation with inflation and the U.S.’s positive interest rate differential over European assets. In eurozone news, Bundesbank Weber predicted Germany’s economy will expand in 2006 but then decelerate in 2007. Weber also called the ECB’s decision to raise interest rates last week “necessary and appropriate” and reiterated the ECB “sees upward risks to the outlook for price stability.” Data released in Germany today saw the November wholesale price index fall 0.6% m/m and climb 2.2% y/y while the German October current account surplus printed at €6.4 billion, down from €7.8 billion in September. European Central Bank member Bini-Smaghi talked up eurozone interest rates today, saying the ECB may need to tighten policy further. Euro offers are cited around the $1.1860/ 1.1905/ 1.1965 levels.
The yen lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥120.75 level and was supported around the ¥120.30 level. The pair failed to sustain a move above the ¥120.60/ 65 level, the 23.6% retracement of the move from ¥118.20 to ¥121.40. Also, today’s intraday low was the 23.6% retracement of the move from ¥121.40 to ¥119.95. Finance minister Tanigaki again urged Bank of Japan to not unwind its long-standing quantitative easing policy saying the “government (and BoJ) must work as a team and make maximum efforts to beat deflation.” Tanigaki’s comments were seconded by Chief Cabinet Secretary Abe. Data released in Japan overnight saw GDP downwardly revised to 0.2% from 0.4% for the July – September period while the annualized rate printed at 1.0%, down from 1.7%. Most traders expect BoJ to keep its monetary policy intact Q2 2006 or later at which time it will begin to normalize interest rates, a process likely to take several years. The Nikkei 225 stock index climbed 1.45% to close at ¥15,504.05. Dollar bids are cited around the ¥120.15/ 119.80 levels. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥ 141.75 level and was capped around the ¥142.40 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥211.30 level while the Swiss franc weakened vis-à-vis the yen as the cross tested bids around the ¥92.10 level. The Chinese yuan appreciated vis-a- vis the U.S. dollar as the greenback closed at CNY 8.0765, down from CNY 8.0780. Data released in China today saw January – November producer price inflation climb 5.1% while the January – November trade surplus climbed 332.7% to US$ 90.82 billion. This will surely elicit a reaction from U.S. officials who want to enact protectionist trade legislation against China.
The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7555 level and remained supported around the $1.7460 level. Cable moved to intraday highs in the North American session and is up about 225 pips on the week. Data released in the U.K. today saw the October trade in goods deficit narrow to £4.6 billion from £5.6 billion in September. Nationwide released a report today that predicts the U.K. housing market will realize property price gains of around 0% to 3% in 2006. Cable offers are cited around the $1.7600 figure. The euro moved marginally lower vis-à-vis the British pound as the single currency tested bids around the £0.6725 level.
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3065 level and was supported around the CHF 1.2990 level. Today’s intraday low is right around the 50% retracement of the move from CHF 1.2690 to CHF 1.3285. Most traders expect Swiss National Bank to tighten monetary policy when policymakers convene next week at their year-end policy meeting. Dollar bids are cited around the CHF 1.2915/ 1.2885 levels. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5400 and 2.2880 levels, respectively.
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