Thursday December 22, 2005 - 15:41:17 GMT
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Forex Market Commentary and Analysis (22 December 2005)
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.1870 level and remained supported around the $1.1810 level. Many economic data were released in the U.S. today. First, it was reported that November personal spending climbed +0.3% while personal spending climbed +0.3%. It was also reported that the U.S. savings rate remained in negative territory at -0.2%, illustrating American’s penchant for imported goods. Second, weekly initial jobless claims fell 13,000 to 318,000. Third, personal consumption expenditures fell 0.4%, the largest one-month decline on record, while the ex-food and energy component was up a mere 0.1% last month. The core annualized PCE index decelerate to growth of 1.79%, down from 1.88% in October. Fourth, it was reported that November leading economic indicators printed at +0.5%. Notably, the core PCE measure is the lowest it has been in several months, a stark contrast to when it printed at 2.7% in March 2004. Most traders believe the Federal Open Market Committee will tighten monetary policy again at the end of next month. Richmond Fed President Lacker signaled additional monetary tightening is in the cards, saying it is “too soon” to say “pass-through” energy costs have ended. The overriding question on traders’ minds is what Fed policymakers will do on 28 March. In eurozone news, EMU-12 industrial orders fell 0.5% m/m in October and were up 4.4% y/y. Also, German import prices were off 0.2% last month and up 5.5% y/y. The German government reported it will formally nominate Juergen Stark to succeed Otmar Issing at the European Central Bank in 2006. Euro offers are cited around the $1.1920/ 80 levels.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥116.75 level after testing offers around the ¥117.65 level. Today’s intraday low is just below the 38.2% retracement of the move from ¥115.50 to ¥117.65 and puts the focus back on the ¥116.00 figure. Bank of Japan Governor Fukui spoke today and reiterated there is a strong possibility the core consumer price index will continue to move higher in 2006. He also added a change in the central bank’s long-standing quantitative easing policy is in sight but did not commit to a time frame. The government and BoJ have been at odds over the past several months about when the latter will begin to shift its monetary policy. An initial move in that direction is expected to take place next year but it will take years for interest rates to normalize. Data released in Japan overnight saw the October tertiary index climb 1.2% m/m while the all-industries index was up 0.9%. The November trade surplus was up +0.6% y/y, the first climb in eight months. Political tensions between China and Japan became exacerbated overnight and even though this may not be impacting the yen much at the moment, their sometimes strained relations will become an important factor when the yuan/ yen cross rate trades in the future. The Nikkei 225 stock index lost 0.10% to close at ¥15,941.37. Dollar bids are cited around the ¥116.00 figure. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥138.40 level and was capped around the ¥139.20 level. The British pound and Swiss franc came off vis-à-vis the yen and tested bids around the ¥202.95 and ¥88.90 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 8.0775, up from CNY 8.0765. The Chinese media reported the Chinese government “will increase the flexibility of the yuan” in the next stage of its currency reforms, making it “more market-oriented.” The Chinese government also reported the domestic economy is expected to grow 9.4% this year with CPI at 1.7%.
The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7335 level and was capped around the $1.7455 level. Data released in the U.K. today saw Q3 GDP climb +0.4% q/q, unchanged from the previous estimate. This renders it extremely likely the U.K. economy will have grown at its slowest pace in 2005 in thirteen years as the year-on-year rate stood at 1.7% in Q3. Many traders now believe Bank of England’s Monetary Policy Committee will reduce interest rates by 25bps as early as February or March. Other data released in the U.K. today saw the Q3 current account deficit print at -£10.2 billion, the largest ever current account deficit. Cable bids are cited around the US$ 1.7370 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.6825 level and was supported around the £0.6775 level.
The Swiss franc moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.3075 level and was capped around the CHF 1.3170 level. Data released in Switzerland today saw the November trade surplus print at CHF 935.3 billion, down 21.4% y/y. Dollar bids are cited around the CHF 1.3040 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5565 level while the British pound came off vis-à-vis the Swiss franc as sterling tested bids around the CHF 2.2775 level.
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