Wednesday March 1, 2006 - 15:10:56 GMT
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Forex and Commodity Market Commentary and Analysis (1 March 2006)
The euro moved higher vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.1965 level and was supported around the $1.1920 level. Stops were triggered above the $1.1940 level, representing the 23.6% retracement of the move from $1.2325 to $1.1825. The common currency is drifting higher as traders reassess the Federal Reserve‚Äôs likely course of monetary policy given the recent string of sub-par economic data including yesterday‚Äôs weaker-thank-expected Chicago PMI survey, decreased consumer confidence, and a decline in existing U.S. home sales. Many traders now believe the Federal Open Market Committee may stop tightening policy after they lift the federal funds target rate by 25bps to 4.75% at the end of this month. Others, however, still see another final tightening at the 10 May FOMC meeting. Data released today in the U.S. saw January personal income climb +0.7% while personal spending was up +0.9%. The headline personal consumption expenditures deflator printed at 3.1% while the core PCE deflator came in at +1.8% y/y, a little on the high side of the Fed‚Äôs perceived comfort zone. Other data released today saw the February ISM manufacturing index print at 56.7, just better-than-expected and up from January‚Äôs 54.8 level, while January construction spending climbed +0.2%, cooler-than-expected. Friday‚Äôs University of Michigan consumer sentiment index will be closely watched by traders. Some dealers are reporting dollar-selling interest related to the Bush administration‚Äôs decision to allow a United Arab Emirates firm to manage U.S. ports. This was cited as one reason why yesterday‚Äôs consumer confidence number was off and some Middle Eastern figureheads are saying Arab investors will shift their portfolios away from the U.S. In eurozone news, the EMU-12 PMI manufacturing survey improved to 54.5 last month from 53.5 in January, exceeding expectations and the strongest reading since July 2004. Many traders believe the the European Central Bank will hike its refinancing rate by +25bps tomorrow to 2.50% and some see official rates at 3.0% by the end of the year. On a negative note, the PMI survey also indicated companies continued to reduce jobs. Other EMU-12 data released today saw the January unemployment rate print at 8.3%, unrevised from December‚Äôs level, while February harmonized consumer prices were up 2.3% y/y, down from January‚Äôs 2.4% y/y level. The European Commission announced it may ratchet-up disciplinary action against Germany for its continued breach of European Union deficit rules. Germany‚Äôs budget deficit was 3.3% of GDP in 2005 and is expected to be above the 3.0% ceiling target again this year.
The yen weakened marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•116.30 level and was supported around the ¬•115.45 level. Technically, the pair‚Äôs intraday high was about ten pips short of testing the 50% retracement of the move from ¬•113.40 to ¬•119.40. The Nikkei reported Bank of Japan is deliberating plans to limit the rise in short-term and long-term interest rates when it unwinds its long-standing quantitative easing policy. Specifically, BoJ may seek to keep the uncollateralized overnight call rate at or below 0.1%. Some traders anticipate a policy shift as early as 9 March while others foresee one around 28 April. In recent days, government officials have given tacit support to the inevitable change in policy. The big news in Japan this week will be Friday‚Äôs consumer price inflation data as many economists are expecting a +0.4% or so increase in core price pressures. A stabilization of core inflation above zero per cent is the main criteria that will fuel a shift in BoJ‚Äôs policy. The Nikkei 225 stock index shed 1.49% to close at ¬•15,964.46. Dollar bids are cited around the ¬•115.30/ ¬•114.80 levels. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•138.85 level and was supported around the ¬•137.80 level. The British pound and Swiss franc appreciated vis-√†-vis the yen as the crosses tested offers around the ¬•204.15 and ¬•88.90 levels, respectively. The Chinese yuan appreciated sharply vis-√†-vis the U.S. dollar as the greenback closed at CNY 8.0373 in over-the-counter trade, down from CNY 8.0403, and at CNY 8.0369 in exchange-traded activity. The big news in China overnight was a statement from a senior Chinese official who indicated China will soon make the yuan ‚Äúbasically convertible‚ÄĚ on the capital account. Chinese President Hu Jintao visits Washington, D.C. in April and some are speculating China will make a major announcement around that time. The yuan has now appreciated about 0.91% vis-√†-vis the U.S. dollar since it was revalued on 21 July 2005. Data released in China today saw the February PMI survey print at 50.7, up from January‚Äôs 50.2 level.
The British pound moved higher vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.7595 level and was supported around the $1.7515 level. Technically, today‚Äôs intraday high was right below the 38.2% retracement of the move from $1.8495 to $1.7045. Data released in the U.K. today saw February CIPS PMI fall to 51.7 from 51.8 in January, an indication the manufacturing sector continues to evidence some expansion. Manufacturing output prices increased at their fastest pace in one year and the input prices sub-index was up sharply to 65.7 from 61.6. These data suggest manufacturers are trying to pass on some price increases to maintain their margins and will concern Bank of England policymakers who are sensitive to second-round inflation effects. Also, Bank of England reported M4 net mortgage lending was up ¬£9.2 billion, up from December‚Äôs ¬£8.8 billion pace and the strongest showing since April 2004. Mortgage approvals were also robust and these data reconfirm the idea the U.K. housing market has stabilized. Cable offers are cited around the US$ 1.7655 level. The euro gained marginal ground vis-√†-vis the British pound as the single currency tested offers around the ¬£0.6810 level and was supported around the ¬£0.6790 level.
The Swiss franc moved higher vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.3040 level and was capped around the CHF 1.3115 level. Technically, today‚Äôs intraday low is right around the 23.6% retracement of the move from CHF 1.2240 to CHF 1.3285. Data released in Switzerland today saw the February PMI survey improve to 60.0, above the ‚Äúboom-or-bust‚ÄĚ 50.0 level for the twelfth consecutive month. These data bode well for the Swiss manufacturing sector. Traders continue to monitor the impact of heightened geopolitical tensions involving Iran, Iraq, and Nigeria, and their impact on the Swiss franc. Dollar bids are cited around the CHF 1.2980 level. The euro and British pound weakened vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.5605 and CHF 2.2915 levels, respectively.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7465 level and was supported around the $0.7415 level. Technically, today‚Äôs intraday high was right around the 50% retracement of the move from $0.7585 to $0.7340. Data released in Australia today saw the February performance of manufacturing index decline 3.5 points to 46.7 while Q4 GDP was up 0.5% q/q and 2.7% y/y. Australian Treasurer Costello reported the economy needs to grow at a faster pace to meet the government‚Äôs 3.0% GDP target for the fiscal year. Aussie offers are cited around the US$ 0.7495/ 0.7530 levels.
The Canadian dollar was little-changed vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1390 level and was supported around the $1.1360 level. Data released in Canada yesterday saw GDP climb an annualized 2.5% in Q4 and 2.9% y/y for all of 2005, up from 2004‚Äôs growth rate of 2.8%. Data to be released in Canada today include January industrial product prices. U.S. dollar offers are cited around the C$ 1.1410 level.
The New Zealand dollar appreciated vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6670 level and was supported around the $0.6615 level. The February ANZ commodity price index will be released tomorrow. Kiwi offers are cited around the US$ 0.6695 level.
Gold moved higher vis-√†-vis the U.S. dollar today as gold tested offers around the US$ 564.20 level and was supported around the $ 559.30 level. The pair continues to be supported by the uptick in oil prices and the U.S. dollar‚Äôs recent retreat vis-√†-vis the euro. U.S. gold funds helped to lift the pair some US$ 6.00 yesterday. Some gold buying may be limited by concerns over when Bank of Japan will abandon its long-standing quantitative easing policy, dampening demand for Asian benchmark gold futures on the Tokyo Commodity Exchange. Silver appreciated vis-√†-vis the U.S. dollar as silver tested offers around the US$ 9.81 level.
Crude oil futures were up marginally vis-√†-vis the U.S. dollar today as NYMEX crude for April delivery tested offers around the US$ 62.00 figure and was supported around the $61.45 level. Nonetheless, April crude fell some 9.6% in February. Today‚Äôs higher prices reflected a belief that U.S. gasoline and distillate stocks fell last week. Supply data will be released in the U.S. today. The International Atomic Energy Agency will meet on 6 March to discuss Iran‚Äôs nuclear ambitions. Iran currently exports 2.7 million balers per day and with global surplus capacity around 1.5 million barrels per day, a disruption in Iranian production may not be easily absorbed by the global energy markets. The OPEC meeting scheduled for 8 March in Vienna will also be closely watched.
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