Friday January 13, 2006 - 16:01:53 GMT
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Forex Market Commentary and Analysis (13 January 2006)
The euro moved marginally higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2085 level and was supported around the US$ 1.2025 level. The common currency is poised to close the week with a loss of 90 or 100 pips but chartists are at odds over whether or not the euro’s recent resurgence will continue. Euro bulls believe the European Central Bank will lift interest rates again as early as March to keep inflation in check and believe the Federal Open Market Committee’s last rate hike of the current tightening cycle may be at the end of this month. Euro bears believe the Fed will tighten monetary policy this month and again on 28 March and believe the ECB will not adopt a deep tightening cycle. Chicago Fed President Moskow spoke last night and said the Fed needs to continue its tightening policy to control inflationary pressures, already near the upper boundary of the Fed’s zone of tolerance. Data released in the U.S. today saw December headline producer price inflation climb 0.9%, the largest gain since September, while the ex-food and ex-energy core PPI rate was up a modest 0.1%. For 2005 as a while, PPI was up 5.4%, the largest calendar year increase since 1990. This is an important statistic because Fed policymakers tightened interest rates last year and must be alert for any second-round inflation effects. Notably, the crude producer price index is up 22.1% over the past year and with energy prices again reaching high levels, this will be a concern to Fed officials. These data were countered by U.S. December retail sales figures that saw headline growth of 0.7% and ex-autos growth of 0.2%. October’s and November’s headline retail sales tallies were upwardly revised by a cumulative 0.4%. For all of 2005, retail sales were up 7.3%, off from 2004’s pace of 7.6%. In eurozone news, European Central Bank member Weber said he expects Germany to register GDP growth of about 1.5% in 2006. EMU-12 GDP was up 0.6% q/q in Q3 and was up 1.6% y/y and the European Commission reported its expects GDP to register a gain between 0.4% and 0.8% in Q4 and Q1, increasing to as much as 0.9% in Q2 of this year. Traders are still trying to assess exactly what European Central Bank President Trichet said in his comments yesterday. Most dealers believe Trichet was less hawkish than expected in his remarks but many believe the ECB has clearly left the door open for a tightening in March. Other eurozone data saw German 2005 wholesale prices climb 2.8% y/y. Euro offers are cited around the US$ 1.2110 level.
The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥114.80 level and was supported around the ¥114.30 level. Technically, the intraday high was about ten pips below the 76.4% retracement level of the move from ¥113.00 to ¥121.40. Bank of Japan Governor Fukui hawkishly said he expects core consumer prices to continue their rise as Japan’s economy continues to improve. The central bank will not begin to unwind its long-standing quantitative easing policy until the annualized change in monthly core CPI is above zero per cent for a period of time, there is no change of deflation returning, and the economy registers steady growth. There was a report in the Japanese media today that the central bank may upwardly revise its growth forecast for the fiscal year starting in April from 1.8% to 2.0%. In a separate report today, the BoJ upgraded its economic assessment for all regions across the country and said the economy “continues to recover” or “pick up gradually.” Data released in Japan today saw core private-sector machinery orders rise 2.3% m/m in November but failed to meet expectations. Also, Tokyo-area December department store sales were up 2.1% y/y. The Nikkei 225 stock index climbed 0.06% to close at ¥16,454.95, a fresh multi-year high. Dollar bids are cited around the ¥113.85 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥138.30 level and was supported around the ¥137.60 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥202.95 and ¥89.30 levels, respectively. The Chinese yuan weakened vis-à-vis the U.S. dollar as the greenback closed at CNY 8.0683 in the over-the-counter market, up from CNY 8.0664 yesterday. The pair closed at CNY 8.0683 in the exchange-traded market, up from CNY 8.0661.
The British pound erased some of yesterday’s losses vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7730 level and was supported around the $ 1.7590 level. Technically, today’s intraday low was right around the 38.2% retracement of the move from US$ 1.8495 to US$ 1.7045. NIESR released a report today that predicts U.K. economic growth is moving back towards its trend rate of growth. Next week will see a lot of economic data released in the U.K. including inflation data, housing market data, labour market numbers, and holiday retail sales. 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 £0.6810 level and was capped around the £0.6845 level.
The Swiss franc moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2810 level after failing to get through offers around the CHF 1.2870 level. Technically, today’s intraday low is right around the 23.6% retracement of the move from CHF 1.1285 to CHF 1.3285. Traders are talking about the situation involving Iran and its nuclear ambition and how the Swiss franc’s perceived safe-haven status may come into play. Iran broke the United Nations’ nuclear seals this week and has vowed to continue nuclear development. The international community has called for emergency meetings of the United Nation’s nuclear watchdog in response. Dollar bids are cited around the CHF 1.2760/ 1.2690 levels. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5495 and CHF 2.2745 levels, respectively.
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