Wednesday December 28, 2005 - 15:24:31 GMT
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Forex Market Commentary and Analysis (28 December 2005)
The euro notched solid gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.1930 level and remained supported around the $1.1825 level. Technically, today’s intraday high is just above the 50% retracement of the move from $1.2200 to $1.1640. Liquidity conditions were a bit more normal today with London dealers having returned to the market after a long holiday weekend. The common currency’s move higher followed a stronger-than-expected German January GfK consumer sentiment result that printed at 3.8. This pushed the pair above the $1.1900 figure and chartists are now eyeing the $1.1985 level as their next target. Data released in the U.S. today saw ICSC retailers’ same-store sales climb 2.8% last week and 3.9% y/y, an indication that the U.S. holiday shopping period may have been robust. Other data saw the December consumer confidence number print at 103.6, up from 98.3 in November but a little less-than-expected. These data are important because they evidence a nice improvement following this year’s hurricane activity in the U.S., heightened energy prices, and continued monetary tightenings by the Federal Reserve. Weekly initial jobless claims data and November existing home sales data will be released tomorrow. Euro offers are cited around the US$ 1.2065 level.
The yen gained marginal ground vis-à-vis the U.S. dollar today as the greenback tested bids just below the ¥117.00 figure and was capped around the ¥117.50 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from ¥121.40 to ¥115.50. Data released in Japan today saw November industrial output up 1.4% m/m, below forecast, while November commercials sales expanded 3.9% y/y and retail sales with up 0.1%. Improvements in final private demand are likely to coincide with the end of Japan’s long-standing bout with deflation as consumers will no longer delay purchases thinking they can consume the same goods and services at a lower price in the future. Capital flows data released in Japan overnight saw Japanese investors purchase a net ¥176.8 billion in foreign debt last week, lifting the 2005 total to around ¥15.8 trillion. In contrast, foreign investors have been major purchasers of Japanese equities this year and have fueled the Nikkei 225’s 40% climb in 2005. Despite this, however, the yen has depreciated and this suggests there may be more portfolio outflows from Japan than portfolios inflows to Japan. The Nikkei 225 stock index climbed 1.41% to close at ¥16,194.61. Dollar bids are cited around the ¥116.55 level. The euro extended recent gains vis-à-vis the yen as the single currency tested offers around the ¥139.90 level and was supported around the ¥138.80 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥203.80 and ¥89.80 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0725, down from CNY 8.0740.
The British pound retraced much of its intraday gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7405 level and came off below the $1.7300 figure during the North American session. Cable was supported around the $1.7265 level overnight. Technically, today’s intraday high and low are around the 38.2% and 23.6% retracement levels of the move from $1.7900 to $1.7045, respectively. Sterling spun higher after property website Hometrack reported higher U.K. home prices this month for the first time in eighteen months, up 0.1% m/m. The big question on traders’ minds now is whether – and when – Bank of England’s Monetary Policy Committee will ease interest rates in 2006. Many believe the central bank could take rates lower by 25bps as soon as February or March. Cable offers are cited around the $1.7390 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.6890 level and was supported around the £0.6845 level.
The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.3050 level after encountering offers around the CHF 1.3175 level. The Swiss franc is benefiting from a flare-up in Middle East violence overnight that saw Israel retaliate against an attack by launch missiles at a militant base outside Beirut. Some traders favour the Swiss franc for its perceived “safe haven” status during periods of heightened geopolitical risk. Dollar bids are cited around the CHF 1.3040 level. The euro gained marginal ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5590 level while the British pound came off vis-à-vis the Swiss franc and tested bids around the CHF 2.2605 level.
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