Friday February 3, 2006 - 15:05:50 GMT
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Forex Market Commentary and Analysis (3 February 2006)
The euro came off vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2015 level and failed to get above the $1.2110 level. The common currency moved to weekly lows after the release of a weaker-than-expected U.S. January non-farm payrolls number that saw 193,000 new jobs created last month. The euro reacted this way, however, because there was a net upward revision of 81,000 jobs to November‚Äôs and December‚Äôs tallies, the unemployment rate fell to 4.7%, and average hourly earnings ticked-up to 0.4%. The median forecast for today‚Äôs headline figure was around 250,000 payrolls gains and the whisper number was closer to 300,000 but today‚Äôs data evidence clear tightening in the U.S. labour market. This is significant because the Federal Open Market Committee has indicated its monetary policy decisions will become increasingly driven by economic data. Other U.S. data released today saw the final January University of Michigan consumer sentiment index print at 91.2, lower than the 93.4 forecast. Also, December factory orders climbed +1.1%, just above expectations and down from November‚Äôs 2.5% gain. Additionally, the January non-manufacturing ISM index fell to 56.8 from a revised 61.0 and below expectations. Some traders are reassessing the remarks made by European Central Bank President Trichet following yesterday‚Äôs Governing Council meeting at which policymakers voted to keep the main refinancing rate unchanged at 2.25%. Many traders thought his remarks were on the dovish side. Trichet, however, emphasized the word ‚Äúvigilance‚ÄĚ more than usual in his statements yesterday and added risks to price stability are increasing ‚Äúprogressively.‚ÄĚ In fact, his remarks were more hawkish than some market participants believed them to be. His hawkishness may be warranted because the flash January EMU-12 inflation rate came in at 2.4% y/y, above the ECB‚Äôs 2.0% ceiling target and December‚Äôs 2.2% level. Many dealers believe the ECB may raise rates as early as next month. Other data released in the eurozone today saw the EMU-12 services PMI improve to 57.0 last month from December‚Äôs 56.8 pace, a two-year high. Germany‚Äôs January services PMI rallied to 58.1 from 56.0 in December and EMU-12 retail sales were up 0.1% m/m and 0.8% y/y in December. Euro offers are cited around the US$ 1.2095/ 1.2140 levels.
The yen was little-changed vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•118.65 level and was supported around the ¬•118.30 level. Technically, today‚Äôs intraday low was right around the 61.8% retracement of the move from ¬•121.40 to ¬•113.40. The pair has scored gains of about 100 pips this week so far and chartists are eyeing the ¬•119.50 level as a significant upside target. The Japanese media reported the economy likely grew a real 1.2% q/q in Q4 and an annualized 4.9%. This would mark the fourth consecutive quarter of economic growth and gains are likely to be attributable to increased personal spending and improved labour market conditions along with strong corporate capital expenditures. Traders may be reluctant to assume additional short yen risk later next week when Bank of Japan Governor Fukui speaks. This week, BoJ Deputy Governor Muto outlined some of the central bank‚Äôs plans regarding the unwinding of its long-standing quantitative easing policy and Fukui could shed some additional light on the inevitable shift in policy. As BoJ has indicated repeatedly, it will begin to unwind its unorthodox policy when certain criteria are met, including a stabilization of inflation above the zero per cent level. December machinery orders will also be released next Friday. The Nikkei 225 stock index shed 0.30% to close at ¬•16,659.64. Dollar bids are cited around the ¬•117.40 level. The euro lost ground vis-√†-vis the U.S. dollar today as the single currency tested bids around the ¬•142.95 level and was capped around the ¬•143.40 level. The cross reached levels yesterday not seen since 14 December 2005. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•210.40 and ¬•91.90 levels, respectively. In Chinese news, yuan liquidity will return to normal next week after this week‚Äôs Chinese New Year holidays.
The British pound lost major ground vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.7665 level and was capped around the $1.7810 level. Technically, the pair spiked to the 50% retracement level of the move from $1.7935 to $1.7665 after the release of the U.S. employment data. Data released in the U.K. today saw the January services PMI survey fall to 57.0 from 57.9 in December. These data are important because the U.K.‚Äôs services sector accounts for some 70% of U.K. gross domestic product. Bank of England‚Äôs Monetary Policy Committee will convene next week to deliberate monetary policy and is not expected to change interest rates. Dovish remarks were made by Nickell and Barker this week, however, and they may presage additional monetary easing by Bank of England in H1. The central bank‚Äôs quarterly inflation rate will be released in mid-February and could set the stage for BoE‚Äôs monetary policy through the middle of the year. Cable offers are cited around the $1.7730 and $1.7830 levels. The euro was little-changed vis-√†-vis the U.S. dollar today as the single currency tested bids around the ¬£0.6785 level and was capped around the ¬£0.6805 level.
The Swiss franc depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2985 level and was supported around the CHF 1.2840 level. Stops were hit above the CHF 1.2950 level, representing the 61.8% retracement of the move from CHF 1.3195 to CHF 1.2555. Some safe-haven bids temporarily boosted the franc after a ferry with 1,300 passengers capsized in the Red Sea overnight. Other geopolitical risk factors include the ongoing saga regarding Iran‚Äôs nuclear ambitions. Iranian leaders threatened to ratchet-up their nuclear activities to full capacity and more tension could follow pending discussions among the United Nations‚Äôs Security Council. Dollar bids are cited around the CHF 1.2875 level. The euro and British pound moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.5560 and CHF 2.2925 levels, respectively.
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