Friday December 30, 2005 - 15:18:28 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (30 December 2005)
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.1780 level after running out of steam around the $1.1890 level. Stops were hit below the $1.1800 figure, representing the 61.8% retracement of the move from $1.1640 to $1.2060. Data released in the U.S. yesterday saw weekly initial jobless claims print at a higher-than-expected 322,000 while the Chicago PMI report came in stronger-than-expected at 61.5. The euro lost more than 13% vis-à-vis the U.S. dollar this year and topped out around the $1.3580 level in January. One major factor that contributed to the dollar’s gains this year was the Federal Reserve’s continued monetary tightenings that lifted the federal funds target rate as high as 4.25%. In contrast, the European Central Bank lifted interest rates one time – on 1 December – thereby assuring U.S. yields maintained a healthy advantage over eurozone yields. Another factor that added to the dollar’s gains this year was the relative outperformance of the U.S. economy over the eurozone economy. U.S. GDP growth eclipsed 4.0% this year despite the Fed’s continued rate hikes, elevated energy prices, and the devastation caused by the hurricanes in the late summer. The themes on traders’ minds for 2006 include another probable rate hike by the European Central Bank, the departure of Chairman Alan Greenspan from the Federal Reserve in about a month, and wage negotiations in the eurozone. Euro offers are cited around the US$ 1.1850 level.
The yen depreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥117.00 figure and was capped around the ¥118.15 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from ¥113.00 to ¥121.40. Liquidity was very thin in Australasian dealing as many dealers were off their desks on account of the New Year’s weekend. Liquidity will also be reduced on Monday as some traders may not return to their desks until Tuesday. The dollar is poised to finish 2005 with a gain around 14.8% vis-à-vis the yen. The dominant theme in 2006 will be Bank of Japan’s monetary policy and how it will be impacted by the likely end of Japan’s deflation next year. Most dealers expect the central bank will begin to unwind its long-standing quantitative easing policy next year but it will likely take years for normalcy to return to Japanese interest rates. The Nikkei 225 stock index gave back 1.42% today to close at ¥16,111.43 but gained 40.24% on the year, its strongest annual performance since 1986. Dollar bids are cited around the ¥117.15/ ¥116.55 levels. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥138.70 level and was capped around the ¥139.80 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥201.80 and ¥89.20 levels, respectively.
The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7185 level after encountering offers around the $1.7290 level. Stops were hit below the $1.7230 level, representing the 76.4% retracement of the move from $1.7055 to $1.7805. Data released in the U.K. today saw Nationwide house prices up 0.5% m/m in December. Recent housing market data in the U.K. have confirmed that house prices and housing market activity continue to moderate. The British pound lost about 10.2% vis-à-vis the U.S. dollar this year. The themes traders will be talking about in 2006 include the underperformance of the U.K. economy in terms of GDP, this holiday’s retail sales activity, and another probable monetary easing by Bank of England’s Monetary Policy Committee. Cable offers are cited around the US$ 1.7255 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the £0.6845 level and was capped around the £0.6885 level.
The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3190 level and was supported around the CHF 1.3090 level. Technically, today’s intraday low is around the 61.8% retracement of the move from CHF 1.3285 to CHF 1.2770. The U.S. dollar gained 15.6% vis-à-vis the Swiss franc in 2005. The themes that traders will focus on in 2006 include the continued recovery of the Swiss economy and safe-haven factors such as geopolitical events, heightened energy prices, and precious metals prices. Dollar bids are cited around the CHF 1.3040 level. The euro weakened vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5535 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 2.2700 figure.
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