Thursday January 5, 2006 - 15:46:40 GMT
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Forex Market Commentary and Analysis (5 January 2006)
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2065 level after encountering offers around the $1.2120 level. Technically, today’s intraday high is right around the 50% retracement of the move from $1.2590 to $1.1640 while today’s intraday low is around the 76.4% retracement of the move from $1.2200 to $1.1640. Many players were unwilling to enter new positions today on account of tomorrow’s U.S. December non-farm payrolls number. Most dealers expect payrolls gains around 200,000 for last month but the number has assumed increasing importance in many traders’ minds because the Federal Open Market Committee’s minutes from its 13 December meeting suggested Fed policy will increasingly be decided by economic data. Some market participants expect a strong number because U.S. Treasury Secretary Snow is visibly making the rounds on the talk show circuits today to extol the performance of the U.S. economy and has several media interviews scheduled for tomorrow. Data released in the U.S. today saw weekly initial jobless claims recede by 35,000 to 291,000 – its lowest rate since September 2000, while the four-week average of continuing claims moved higher to 2.66 million. Other data released in the U.S. today saw November pending home sales off 2.5% while the December ISM services survey exceeded expectations with a print of 59.8. Many data were released in the eurozone today and most were positive. First, December eurozone services PMI reached a 23-month high, significantly exceeding expectations with a headline print at 56.8. Germany, France, and Italy all notched improvements in their services PMI surveys. Second, the EMU-12 December economic sentiment indicator improved to 100.5 from 99.9 on November while German November manufacturing orders climbed 1.7% m/m, beating expectations. The eurozone data are very important because European Central Bank President Trichet has repeatedly said poor consumer confidence has hampered economic activity in the eurozone. Third, German November machinery and plant new orders were up 21% y/y while German November retail sales were off 1.0% m/m and 0.6% y/y. Fourth, the EMU-12 December business climate indicator rallied to 0.35 from 0.14 in November. On a negative note, EMU-12 November retail sales were off 0.1% m/m and up 0.3% y/y. Additionally, November PPI came off 0.2% m/m and was up 4.2% y/y. These factory-level inflation data are important because they suggest some price pressures may be waning in the short-term and possibly lessen pressure on European Central Bank to tighten policy further. Euro offers are cited around the US$ 1.2225 level.
The yen was little-changed vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥116.45 level and was supported around the ¥115.75 level. Technically, the pair continued to orbit the ¥116.15 level, the 61.8% retracement of the move from ¥112.95 to ¥121.40. MoF’s Watanabe verbally intervened overnight saying “(FX) moves have been rough from year-end and in the new year” and added officials – including finance minister Tanigaki – are monitoring the markets. It has been nearly two years since Japan last overtly conducted yen-selling intervention and government officials are concerned that an end to Bank of Japan’s long-standing quantitative easing policy could precipitate a stronger yen. Data released in Japan overnight saw the December monetary base rise 1.0% y/y. The yen did manage to score some gains on some of its crosses but some traders reported the yen’s gains were limited on account of an earthquake in Baja California, an area that is said to be seismically correlated to Japan. The Nikkei 225 stock index climbed 0.39% to close at ¥16,425.37, right below the high of the 52-week range. Dollar bids are cited around the ¥115.05 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥140.00 figure after running out of steam around the ¥140.85 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥202.90 and ¥90.40 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as CNFEC’s parity rate was CNY 8.0678, down from yesterday’s parity rate of CNY 8.0702. The pair depreciated and closed around CNY 8.0663 in the OTC market. People’s Bank of China announced it is targeting a 16% rise in the M2 money supply this year, along with a 14% rise in M1. This compares to a target of 15% for both M1 and M2 for 2005. The State Administration of Foreign Exchange announced it wants to increase its investment returns from its foreign exchange reserves this year, a signal that it may shift its reserves balance or optimize its investment strategy.
The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7485 level and was capped around the $1.7585 level. Technically, today’s intraday high is around the 61.8% retracement of the move from $1.7905 to $1.7055 while today’s intraday low is right around the 50% retracement of the same range. Data released in the U.K. today saw the services PMI survey rally to 57.9 in December from 55.8 in November, the strongest level since April 2004 and far in excess of expectations. These data suggest Q4 U.K. GDP may not be as tepid as originally suspected. Notably, the prices charged index reached a thirteen-month high last month and input prices were up sharply. These two factors have some traders scaling back their expectations of a Bank of England monetary easing in Q1 2006 or early Q2 2006. Cable offers are cited around the US$ 1.7600/ 1.7705 levels. The euro was little-changed vis-à-vis the British pound as the single currency tested bids around the £0.6880 level and was capped around the £0.6910 level.
The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2825 level and was supported around the CHF 1.2760 level. Technically, today’s intraday low is right around the 50% retracement of the move from CHF 1.2240 to CHF 1.3285. Dollar bids are cited around the CHF 1.2690 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5440 and CHF 2.2390 levels, respectively.
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