Friday January 6, 2006 - 15:29:49 GMT
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Forex Market Commentary and Analysis (6 January 2006)
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2180 level and was supported around the $1.2080 level. The common currency advanced to daily highs – and its strongest level since 7 October – after the release of a weaker-than-expected U.S. December non-farm payrolls report. Around 108,000 jobs were created last month, about half of expectations, while the unemployment rate moved lower to 4.9% from 5.0% and average hourly earnings expanded 0.3%. The November non-farm payrolls tally was upwardly revised from 215,000 to 305,000 while the October total gave back 25,000. Notably, the manufacturing and service sectors added 18,000 and 96,000 jobs, respectively. The U.S. dollar has been on the defensive for most of the week thus today’s lighter-than-expected report easily dented confidence in the dollar. The primary reason for the dollar’s reaction relates to the Federal Open Market Committee meeting minutes from 13 December that were released this week. Fed policymakers reported upcoming economic data would largely drive interest rate policy in the near-term and an unimpressive jobs report may lessen the Fed’s need to tighten monetary policy. FOMC officials will next convene at the end of this month to determine the next move in interest rates and the markets expect a tightening in the fed funds target rate of +25bps to 4.50%. The FOMC meeting on 28 March is more of an unknown as many traders believe the Fed only has one more interest rate hike in front of them at this time. U.S. Treasury Secretary Snow reported the economy may be at a “tipping point” concerning wage growth, predicting pay deals may soon move higher on account of the positive economic performance of the U.S. economy. This would be a concern to Fed policymakers who do not want to see too much wage growth inflation. In eurozone news, German November industrial output was off 0.4% m/m, defying expectations of a 0.1% rise. Germany’s Ifo institute is said to be forecasting 2006 economic growth between 1.5% and 2.0% for Germany, up from their recent forecast of 1.7% growth and above the German government’s current forecast of 1.5% to 1.8% growth. Other data released today saw the eurozone November unemployment rate print at 8.3%, unchanged from October’s result and consistent with forecasts. Euro offers are cited around the US$ 1.2225 level.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥114.55 level and was unable to advance above the ¥116.30 level. Australasian dealers reported that regional central banks were purchasing dollars for yen during the overnight session, and a South Korean finance official reported his country would do the “utmost” to stabilize the South Korean won. There were also reports that Taiwan’s central bank and Singapore’s Monetary Authority intervened on Friday to slow their currencies’ appreciation. It was announced that Japanese finance minister Tanigaki will meet his U.S. counterpart, Treasury Secretary Snow, in Washington, D.C. next week. Tanigaki is also scheduled to meet outgoing Fed Chairman Greenspan and there is likely to be an increase in intervention-related talk ahead of the meetings. The dollar has tumbled some 300 pips this week vis-à-vis the yen and even though Japanese monetary authorities have not overtly conducted yen-selling intervention for nearly two years, the speed of the yen’s recent rise will be of concern to Japanese policymakers. The Nikkei 225 stock index climbed 0.02% to close at ¥16,428.21. Dollar bids are cited around the ¥113.55 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥139.25 level and was capped around the ¥140.65 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥202.10 and ¥90.20 levels, respectively. The Chinese yuan came off vis-à-vis the U.S. dollar today as the greenback’s last OTC print today was CNY 8.0670, up from CNY 8.0663 yesterday. Today’s central parity rate was CNY 8.0675.
The British pound scored significant gains vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7695 level and was supported around the $1.7510 level. The pair has gained more than 450 pips this week and last traded this high on 19 December. There were no significant data out of the U.K. today. On the fiscal front, the European Commission announced it will discuss the U.K.’s deficit breach on Wednesday. There is talk the European Union is advocating disciplinary procedures against the U.K. for running a deficit that exceeds the limits permitted by the Stability and Growth Pact. Cable offers are cited around the US$ 1.7770 level. The euro weakened vis-à-vis the British pound as the single currency tested bids around the £0.6870 level and was capped around the £0.6905 level.
The Swiss franc extended recent gains vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2675 level after encountering offers around the CHF 1.2790 level. The Swiss government upwardly revised its 2006 Swiss GDP forecast to 1.8% from 1.7% and predicts the Swiss economy will expand 1.5% next year. Data released in Switzerland today saw the December jobless rate rise to 3.8% from 3.7% in November. On the monetary policy front, OECD released a report that Swiss National Bank should tighten monetary policy “gradually.” Dollar bids are cited around the CHF 1.2640/ 1.2590 levels. The euro came off vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5410 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 2.2460 level.
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