Monday February 20, 2006 - 13:50:56 GMT
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Forex Market Commentary and Analysis (20 February 2006)
The euro was little-changed vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.1975 level and was supported around the $1.1920 level. Technically, the pair stopped just short of testing the 50% retracement of the move from $1.1640 to $1.2325. The common currency registered a strong comeback on Friday after a weaker-than-expected mid-February University of Michigan consumer sentiment index was released in the U.S. Some traders began to pare back their expectations regarding future U.S. interest rate hikes following Friday‚Äôs sentiment data even though it capped off a relatively strong week for U.S. economic data and semi-hawkish testimony from new Fed Chairman Bernanke. Most traders continue to believe the Federal Open Market Committee will raise interest rates on 28 March and some continue to believe another +25bps tightening is in the card for the 10 May FOMC meeting. This week‚Äôs consumer price inflation data scheduled for release on Wednesday will be a primary focus as traders wait to see if growing producer price inflation is filtering through to the retail and consumer level. A week CPI print would likely be dollar-negative as traders would be forced to reduce their expectations concerning additional Fed tightening. Friday‚Äôs durable goods orders data in the U.S. are another key focus for traders this week as many economists are actually forecasting a decline. In eurozone news, European Central Bank President Trichet testifies later today and his remarks will be closely scrutinized for any clues about the ECB‚Äôs likely path of monetary policy. Many traders believe the ECB will raise rates as early as next month given stubbornly highly inflation in the eurozone and the recent spike in energy prices. Data released in the eurozone today saw German December retail sales off 0.8% m/m and off 0.9% y/y/. Also, German January producer price inflation was up 1.2% m/m and 5.6% y/y, the strongest annualized rate since July 1982. Ex-energy, annualized PPI was up 1.2%. Germany‚Äôs Bundesbank released its February monthly bulletin today and predicted Germany will likely experience ‚Äúa continuation of the economic upward trend.‚ÄĚ Bundesbank also indicated a reduction in Germany‚Äôs budget deficit to 3% of GDP is ‚Äúwithin reach.‚ÄĚ Euro offers are cited around the US$ 1.2000/ 1.2060 levels.
The yen lost marginal ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•118.35 level and was supported around the ¬•117.90 level. Today‚Äôs range was relatively narrow overnight given a lack of major news out of Japan and was expected to remain thin through North American dealing on account of a market holiday in the U.S. The pair was little-changed week-on-week last week and remained supported above technical support seen around the ¬•116.55 level, the 38.2% retracement of the move from ¬•108.75 to ¬•121.40. Data released in Japan overnight saw January convenience store sales decline 3.2% y/y. The yen had its chances to advance last week after the release of relatively strong gross domestic product data but was reined in by a worse-than-expected GDP deflator that evidenced continuing deflation in Japan. This week‚Äôs primary focus will be Thursday‚Äôs data including December trade and the January corporate services price index. The age-old question on traders‚Äô minds is when Bank of Japan will officially begin to unwind its long-standing quantitative easing policy. Last week‚Äôs GDP deflator number has many traders believing a shift in policy will not happen before the Bank of Japan Policy Board meeting on 28 April. The Nikkei 225 stock index lost 1.75% to close at ¬•15,437.93. Dollar bids are cited around the ¬•117.40/ ¬•116.45 levels. The euro gained marginal ground vis-√†-vis the yen as the single currency tested offers around the ¬•141.50 level and was supported around the ¬•140.95 level. Technicians are interested to see how the cross trades around the ¬•141.10 level this week, representing the 61.8% retracement of the move from ¬•143.60 to ¬•137.10. The British pound and Swiss franc rallied vis-√†-vis the yen as the crosses tested offers around the ¬•206.30 and ¬•90.45 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 8.0477 in over-the-counter trading, down from CNY 8.0488, and at CNY 8.0475 in exchange-traded activity. Data released in China today saw actual foreign direct investment up 10.99% y/y at US$ 4.55 billion in January. The China Academy of Science, a think-tank, predicted China‚Äôs CPI will be about 1.97% in 2006.
The British pound gained marginal ground vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.7460 level and was supported around the $1.7405 level. Sterling orbited around the $1.7435 level, technically representing the 61.8% retracement of the move from $1.7130 to $1.7935. Data released in the U.K. today saw property website Rightmove report that February home asking prices are up 2.7% m/m, the fastest rate since April 2004. Similarly, CML reported gross mortgage lending in January was at ¬£23 billion, off from December‚Äôs ¬£26.9 billion pace but considerably stronger than the ¬£17.4 billion pace one year ago. These housing market data are very important because they evidence a stabilization in the all-important housing sector. Likewise, CML and BSA reported January mortgage approvals were at their highest level since November 2003 while BBA reported a deceleration in activity. Cable also benefited from public finances data released this morning that saw public sector net borrowing at ¬£12.6 billion. This means the U.K. government recorded its largest ever monthly surplus for the month January this year. These data precede next month‚Äôs Budget report from Chancellor of the Exchequer Brown. Wednesday‚Äôs industrial trends survey and Friday‚Äôs Q4 GDP data will be closely watched by traders. Cable offers are cited around the US$ 1.7490/ $1.7580 levels. The euro was little-changed vis-√†-vis the British pound as the single currency tested offers around the ¬£0.6860 level and was supported around the ¬£0.6845 level.
The Swiss franc gained ground vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.3055 level and was capped around the CHF 1.3115 level. Technically, today‚Äôs intraday low was about ten pips above the 76.4% retracement of the move from CHF 1.3195 to CHF 1.2555. The big driver in the market today was news that Nigerian militants may have destroyed an oil pipeline two days after taking nine oil workers hostage. Oil prices jumped on the news and traders moved into Swiss franc as a safe-haven play. On a similar note, Iran‚Äôs nuclear ambitions and snubbing of global calls to end its uranium enrichment can escalate at any time and the dollar remains vulnerable. Swiss January trade balance data will be released tomorrow. Dollar bids are cited around the CHF 1.2950 level. The euro and British pound lost ground vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.5610 and CHF 2.2765 levels, respectively.
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