Monday January 9, 2006 - 15:36:41 GMT
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Forex Market Commentary and Analysis (9 January 2006)
The euro tumbled vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2065 level and was capped around the $1.2150 level. Technically, today’s intraday low is around the 76.4% retracement of the move from $1.2200 to $1.1640. The common currency finished Friday some 40 points stronger on the day after a weaker-than-expected U.S. non-farm payrolls report dented confidence in the dollar and the Fed’s continued interest rate hikes. European Central Bank President Trichet spoke after today’s G10 meeting of central bankers in Basel and said officials “…don’t exclude that global growth could be a little bit higher in 2006 in comparison to 2005.” ECB policymakers will convene on Thursday and while most traders do not anticipate a monetary tightening, many traders believe the ECB could tighten policy again early in 2006. ECB member Wellink stoked those fires this weekend when he said the eurozone economy is improving, increasing the likelihood of a move higher in rates. The ECB’s press conference on Thursday will be a main drive for the currency late in the week as Trichet himself is likely to spotlight the improvements in the EMU-12 economy and remain relatively hawkish about inflation prospects. Data released in the eurozone today saw Germany’s November current account surplus increase to €8.1 billion from €6.2 billion in October. November wholesale inventories will be released in the U.S. tomorrow followed by the November trade balance on Thursday and December producer price inflation data on Friday. Euro offers are cited around the US$ 1.2110 level.
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥113.75 level after failing to get above the ¥114.55 level. Technically, the ¥113.60/ 55 level represents the 61.8% retracement of the move from ¥108.75 to ¥121.40 and is a major target for chartists. Traders sold dollars for yen when Japanese finance minister Tanigaki was quoted as saying the foreign exchange markets are in line with fundamentals. This suggests monetary authorities are not overly concerned with the yen’s recent rise. That tune may change, however, if the yen’s appreciation accelerates. Japanese officials have not overly conducted yen-selling intervention for nearly two years but a resurgence in the yen could put them on the offensive. An end to Bank of Japan’s long-standing quantitative easing policy – a regime shift expected this year – will likely precipitate more yen appreciation as Japanese investors realize less incentive to invest overseas. November household spending data will be released tonight in Japan. Dollar bids are cited around the ¥113.60 and ¥112.95 levels. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥137.65 level and was capped around the ¥139.10 level. Stops were hit below the ¥138.60 level, representing the 50% retracement of the move from ¥130.60 to ¥143.60. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥201.10 and ¥89.25 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar in the over-the-counter market today, ending the day around CNY 8.0650, down from CNY 8.0670. The dollar closed at the CNY 8.0641 level in the exchange-traded market, below today’s central parity rate of CNY 8.0665. The big news in China today was a report that it upwardly revised its 2004 GDP rate to 10.1% from 9.5% and its 2003 GDP rate to 10.0% from 9.5%. Former People’s Bank of China member Li Yang refuted last week’s market story that China will rejig its foreign exchange reserves portfolio. “The market certainly got the wrong idea from that one brief comment from the foreign exchange administration. It's possible that China will diversify newly added foreign exchange reserves, but it's going to be impossible for them to divest existing dollar-dominated assets,” he said.
The British pound slumped vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7640 level after encountering offers around the $1.7720 level. Today’s intraday high was just above the 76.4% retracement of the move from $1.7900 to $1.7045. Cable notched a gain of some 460 pips last week and today’s pullback may be a reprieve from the buying activity. Data released in the U.K. today saw December Halifax house prices rise 1.0% m/m and 5.1% y/y while the John Lewis Partnership reported like-for-like department store sales were up 9.1% in the seven weeks to 7 January. These anecdotal data are important because they suggest a stabilization in the housing market and a decent holiday shopping and retail period in the U.K. Cable offers are cited around the US$ 1.7740 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the £0.6830 level and was capped around the £0.6865 level.
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2785 level and was supported around the CHF 1.2690 level. Technically, today’s intraday low was right around the CHF 38.2% retracement of the move from CHF 1.1740 to CHF 1.3285. Traders are carefully watching the Swiss franc to see if it will benefit from any safe-haven flows. The price of gold is higher and there is increased instability in the Middle East with Israeli Prime Minister Sharon’s health in doubt and Iran’s announcement that it is removing the United Nations’s inspection seals at some nuclear sites. Dollar bids are cited around the CHF 1.2690 level. The euro lost marginal ground 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 2.2575 level.
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