Friday December 23, 2005 - 13:38:45 GMT
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Forex Market Commentary and Analysis (23 December 2005)
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1840 level and failed to get through the $1.1885 level. The dollar ceded some recent gains yesterday, however, after Richmond Fed President Lacker reiterated the Fed needs to be “alert for movements in economic fundamentals” but added it is “reasonable” to conclude the Fed is “far closer” to ending its tightening cycle than before. Most traders expect the Federal Open Market Committee to deliver another +25bps tightening at the end of January, possibly followed by another +25bps bump higher on 28 March. In contrast, European Central Bank President Trichet was hawkish in published remarks overnight saying “You've got to understand that prevention (of inflation) is better than cure.” Data released in the U.S. today saw November durable goods orders climb +4.4%, more than expected, while the ex-transportation component printed at -0.6%. The October ex-transportation component was also downwardly revised. Other U.S. data scheduled for release today include November new home sales and the final December University of Michigan consumer sentiment index. In eurozone news, German consumer prices climbed 0.8% m/m this month and were up 2.1% y/y. On a harmonized basis, inflation was up 1.0% m/m and 2.1% y/y. German prices are said to register their strongest yearly increase since 2001. Other data released today saw the EMU-12 October current account deficit worsen to €9.0 billion from €3.3 billion in September. Also, French November producer price inflation was off 0.4% m/m and up 2.8% y/y. Euro offers are cited around the $1.1920 level.
The yen was little-changed vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥116.45 level and was capped around the ¥116.75 level. Today’s range was very limited as many dealers were absent from their desks on account of this weekend’s holidays. Additionally, Japanese financial markets were closed overnight. Bank of Japan Governor Fukui notably said yesterday that he expects Japan’s consumer price index to maintain its move higher in 2006, setting the stages for an eventual unwinding of the central bank’s long-standing quantitative easing policy. Fukui also added he expects Japan’s economic recovery to continue next year. Data scheduled for release next week in Japan include consumer price index and unemployment data due on Tuesday followed by industrial production and retail trade on Wednesday. Dollar bids are cited around the ¥116.15/ 115.05 levels. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥138.10 level and was capped around the ¥138.65 level. The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥202.25 and ¥88.70 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0762, down from CNY 8.0775. People’s Bank of China released a forecast today that predicts GDP growth will decelerate to 8.8% in 2006, down from 9.4% in 2005. It was also reported that the government will revised all GDP data since 1992. These revisions could be sizable as it was recently reported that 2004’s GDP tally was underestimated by some CNY 2.3 trillion alone.
The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7340 level and was capped around the $1.7400 figure. Data released in the U.K. today saw IRS pay awards data saw pay deals remain subdued at 3.0%. These data will be viewed as positive by Bank of England because consumer price inflation and energy costs remain elevated and central bank policymakers are sensitive to any second-round inflation effects, such as increased wage inflation. Data released in the U.K. yesterday saw the current account reach a record -£10.2 billion in Q3, worse than most forecasts. Cable offers are cited around the US$ 1.7380/ 1.7470 level. The euro gained marginal ground vis-à-vis the British pound as the single currency tested offers around the £0.6840 level and was supported around the £0.6825 level.
The Swiss franc lost marginal ground vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3150 level and was supported around the CHF 1.3090 level. Technically, today’s intraday low was right around the 61.8% retracement of the move from CHF 1.3285 to CHF 1.2770. Dollar bids are cited around the CHF 1.3040 level. The euro and British pound came off marginally vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5550 and CHF 2.2740 levels, respectively.
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