Monday December 26, 2005 - 15:27:25 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (26 December 2005)
The euro moved marginally higher vis-à-vis the U.S. dollar today in holiday-thinned dealing that saw the single currency supported around the $1.1830 level and capped around the $1.1895 level. Boxing Day holidays on the Continent, in the United Kingdom, and a bank holiday in the U.S. have zapped liquidity to very low levels. Australasian traders will return to their desks overnight to ponder the U.S. dollar’s fate, mindful that its fortunes reversed for the better one year ago this week when it arrested its 2004 freefall and began a steady climb higher. Friday’s news that the final December University of Michigan consumer sentiment index printed stronger-than-expected at 91.5 from 88.7 earlier this month could embolden dollar bulls. In fact, Friday’s number was the strongest print since July and was up from 81.6 in November. Dollar bulls, however, will have to weigh this result against a weak November new home sales figure that saw activity decline 11.3% last month after surging in October. Some of the slowdown could be seasonally-related but the lingering question on traders’ minds is whether or not the Federal Reserve’s continued interest rate hikes are having a negative impact on the sector. The Federal Open Market Committee is expected to tighten monetary policy again by +25bps in a little more than one month and the dominant question on traders’ minds is what the Fed may do on 28 March 2006. Data expected in the U.S> this week include Wednesday’s consumer confidence report followed by weekly initial jobless claims and November existing home sales on Thursday and Friday’s December Chicago PMI index. It is noteworthy that International Monetary Market futures positioning data released on Friday confirm that speculators reduced the net long dollar positions by 80% in the week ending 20 December. This suggests traders are squaring their dollar exposure but it is too early to tell if it is simply profit-taking or new positions being taken against the greenback. Euro offers are cited around the $1.1920 level.
The yen gained marginal ground vis-à-vis the U.S. dollar today as the greenback briefly traded just below the psychologically-important ¥116.00 figure and was unable to get past the ¥116.55 level. The pair’s recent inability to sustain a move above the ¥117.50 level is bearish in the minds of some traders and its move today back below a key technical support level – the 61.8% retracement of the move from ¥113.00 to ¥121.40 – may presage further yen strength. Data released in Japan today saw the business sentiment diffusion index for leading companies rally to 10.5 for the October – December quarter, up from 9.7 in the previous three month period. Traders eagerly await tonight’s consumer price inflation data to see if core price pressures can make a sustained moved into positive territory. Bank of Japan has indicated that a return to positive retail-level inflation is the main criterion needed for the central bank to begin to unwind its long-standing quantitative easing policy. Forecasters are expecting the November core CPI rate to print at +0.1% y/y in what would be the first move to positive prices since October 2003. Other data released in Japan today saw November supermarket sales off 0.4% y/y, the 24th decline in 25 months, while November department store sales evidenced a 3.2% y/y rise. The Nikkei 225 stock index established another 52-week closing high today, up 1.04% to close at ¥16,107.67. Dollar bids are cited around the ¥115.10 level. The euro gained marginal ground vis-à-vis the yen as the single currency tested offers around the ¥138.50 level and was supported around the ¥137.55 level. The British pound and Swiss franc gained marginal ground vis-à-vis the yen as the crosses tested offers around the ¥202.15 and ¥88.95 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0755, down from CNY 8.0762.
The British pound was little-changed vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7375 level and was supported around the $1.7250 level. The Boxing Day holiday in the U.K. today has liquidity significantly reduced. Traders will return to their desks tomorrow to ponder the fate of U.K. monetary policy. Bank of England Monetary Policy Committee policymakers voted 8-1 to keep interest rates unchanged earlier this month and many dealers believe the central bank could lower interest rates again in February or March. Cable offers are cited around the $1.7390 level. The euro was little-changed vis-à-vis the British pound as the single currency tested offers around the £0.6860 level and was supported around the £0.6820 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 1.3110 level. Chartists are interest to see if the pair can remain supported above the CHF 1.3085 level, 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 came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5540 level while the British pound moved higher vis-à-vis the Swiss franc as sterling tested offers around the CHF 2.2805 level.
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