Friday March 3, 2006 - 15:34:52 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (3 March 2006)
The euro appreciated marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the US$ 1.2045 level and was supported around the $1.2005 level. Today‚Äôs intraday high represents the pair‚Äôs strongest showing since 3 February. The common currency reclaimed the US$ 1.2000 figure yesterday after European Central Bank President Trichet spoke hawkishly about the monetary policy outlook. The ECB also increased its inflation forecast for 2007 leading many dealers to up their forecasts for EMU-12 interest rates by the end of the year and into 2007. Many now see official ECB interest rates between 3.0% and 3.5% this time next year. The ECB lifted its 2006 GDP forecast to 2.1% from 1.9% and its 2007 growth forecast to 2.0% from 1.9%. Its 2006 inflation forecast was raised to 2.2% from 2.1% and the 2007 inflation target is now at 2.2%, up from 2.0%. The ECB publishes these forecasts every three months. Notably, the forecasts assume the common currency will be around US$ 1.2100 this year and next year. Data released in the eurozone today saw the PMI services survey print at 58 last month, above forecast and its strongest showing since September 2000. Also, EMU-12 Q4 GDP growth came in at +0.3%q/q and +1.7% y/y, meaning the eurozone registered stronger GDP growth than the U.S. according to the first two provisional Q4 U.S. estimates. In U.S. news, February ISM non-manufacturing survey was released today and it improved to 60.1 from 56.8. Euro offers are cited around the US$ 1.2075/ 1.2130 levels.
The yen depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•116.65 level and was supported around the ¬•115.55 level. Technically, today‚Äôs intraday low was just below the 61.8% retracement of the move from ¬•113.40 to ¬•119.40. The yen gained ground early in the Australasian session after data confirmed the January core consumer price index was up +0.5% y/y, more-than-expected, while the core rate was up +0.1% y/y. While the Tokyo-area February core CPI gained +0.2%. Many traders believe these data cemented a shift in Bank of Japan‚Äôs long-standing quantitative easing policy next Thursday. Others, however, believe the central bank will want to see another month‚Äôs worth of CPI data before changing monetary policy regimes and will instead move around 28 April. Prime Minister Koizumi and other policymakers spoke overnight and said Japan has yet to overcome deflation but added the end of deflation is in sight. The market‚Äôs reaction to the CPI news was a classic case of ‚Äúbuy the rumour, sell the fact.‚ÄĚ Another component of a BoJ shift in policy would involve possibly adopting an inflation target as a reference rate for policy decisions. Following the CPI number, the yield on the benchmark 10-year Japanese government bond reached 1.6990%, a nineteen-month high. Other data released in Japan today saw January wage-earner household spending off 4.7% y/y while the January unemployment rate rose to 4.5% from 4.4%. The Nikkei 225 stock index lost 1.55% to close at ¬•15,663.34. Dollar bids are cited around the ¬•115.30 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•140.20 level and was supported around the ¬•139.15 level. The British pound and Swiss franc gained ground vis-√†-vis the yen as the crosses tested offers around the ¬•204.60 and ¬•89.70 levels, respectively. The Chinese yuan depreciated marginally vis-√†-vis the U.S. dollar in the exchange-traded market as the greenback closed at CNY 8.0367, up from CNY 8.0366, and was higher in the over-the-counter market, closing at CNY 8.0382. The State Administration for Foreign Exchange confirmed China will proceed with convertibility of the yuan on the capital account ‚Äúat a steady pace,‚ÄĚ perhaps disappointing some traders who expected a major announcement ahead of President Hu Jintao‚Äôs visit to the U.S. next month. A Chinese government advisor overnight said China should not maintain more than US$ 250 billion in foreign exchange reserves, a stark contrast to the US$ 818.9 billion it currently holds. Interestingly, the National Development and Reform Commission indicated China‚Äôs economy is evidencing signs of slowing down while another government body predicted the economy will accelerate and top 10% growth this year.
The British pound gained ground vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.7580 level and was supported around the $1.7500 figure. Stops were hit above the $1.7560 level, representing the 23.6% retracement of the move from $1.9215 to $1.7045. Data released in the U.K. today saw the February CIPS services PMI survey escalate to 58.9, its highest print since April 2004. Bank of England‚Äôs Monetary Policy Committee is not expected to change monetary policy next week. Cable offers are cited around the US$ 1.7610/ 85 levels. The euro weakened vis-√†-vis the British pound as the single currency tested bids around the ¬£0.6840 level and was capped around the ¬£0.6865 level.
The Swiss franc lost marginal ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.3020 level and was supported around the CHF 1.2950 level. Technically, today‚Äôs intraday low was right around the 61.8% retracement of the move from CHF 1.3195 to CHF 1.2555. Traders continue to monitor heightened geopolitical risks involving Nigeria, Iran, and Iraq and the impact these risks may have on safe-have demand for the Swiss franc. Dollar bids are cited around the CHF 1.2885 level. The euro came off marginally vis-√†-vis the Swiss franc as the single currency tested bids around the CHF 1.5605 level while the British pound gained ground vis-√†-vis the Swiss franc and tested offers around the CHF 2.2825 level.
The Australian dollar tumbled vis-√†-vis the U.S. dollar today as the Aussies tested bids around the US$ 0.7420 level and was capped around the $0.7485 level. Stops were triggered below the $0.7435 level, representing the 38.2% retracement of the move from $0.7585 to $0.7340. Data released in Australia today saw the January trade deficit worsen to ‚ÄďA$ 2.69 billion from December‚Äôs ‚ÄďA$ 1.146 billion level. Also, the services PMI survey slumped to 48.7, its first decline since May 2005. Aussie offers are cited around the US$ 0.7490 level.
The Canadian dollar weakened vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1360 level and was supported around the $1.1305 level. The pair briefly traded below the C$ 1.1300 figure this week. U.S. dollar offers are cited around the C$ 1.1395 level.
The New Zealand dollar depreciated vis-√†-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6635 level and was capped around the $0.6680 level. Traders continue to short the kiwi on account of deteriorating consumer and business sentiment and growing deficits including a ballooning current account deficit. New Zealand dollar offers are cited around the US$ 0.6695 level.
Gold came off vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 563.50 level after running out of steam around the $570.50 level. The intraday high was about $4.00 shy of the recent 25-year high. The big news in the metals market, however, was silver. Silver appreciated vis-√†-vis the U.S. dollar and tested offers around the US$ 10.31 level, its strongest showing in more than 22 years. News that a new silver exchange-traded fund is nearing regulatory approval contributed to the pair‚Äôs gains. Traders are optimistic because gold exchange-traded funds are merely three years old and five global funds have collected 467 tons of gold, equivalent to the twelfth largest holdings of gold reserves by a global central bank.
Crude oil came off vis-√†-vis the U.S. dollar today as NYMEX light, sweet crude for April delivery tested bids around the $62.90 level and was capped around the $63.75 level. Traders continue to weigh relatively robust U.S. energy stocks and supplies against heightened geopolitical pressures involving Iran, Iraq, and Nigeria. The International Atomic Energy Association meets on Monday to deliberate Iran‚Äôs fate regarding its nuclear ambitions. The IAEA may refer Iran to the United Nations Security Council. OPEC will convene in Vienna on 8 March to consider global oil supplies.
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