Wednesday July 7, 2004 - 15:56:17 GMT
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Forex Market News and Commentary (7 July 2004)
The euro scored major gains vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2380 level after finding some good intraday demand around the $1.2350 level. The pair was as low as the $1.2275 level during Australasian dealing but began a steady move higher that culminated in major stops being triggered above the $1.2340/50 levels. The markets are still reacting to Friday’s lower-than-expected June non-farm payrolls data that saw less jobs created in the U.S. last month than in recent months. This lends credence to the theory that the Federal Reserve will continue its gradual approach to tightening monetary policy and will not surprise the markets with a 50bps move. ECB’s Weber was on the wires late last night saying the ECB does not have a current policy bias but ECB-watchers have recently detected a slight dose of hawkishness from central bank policymakers. Weber did refer to the recent “slight” rise in inflation and reiterated the ECB’s mantra about vigilance. Data released in the U.S. today saw the MBA refinancing index up 27.6% while ICSC-UBS retail sales were up +0.9% in the week ending 3 July. A DNT with legs at $1.1950 and $1.2350 rolled off at 1400 GMT today and the single currency has been bid above that level ever since. Options traders also cited option barriers around the $1.2400/50/85/ 90 levels with other option barriers around the $1.2500/50 levels. Data released in Germany today saw May manufacturing orders up +1.6% m/m. Euro offers are seen around the $1.2425/60 levels with bids seen around the $1.2335/00 levels. The $1.2280 level is cited as major support level below which stops are cited.
The yen moved higher vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥ 108.20 level, the pair’s first significant pullback lower in more than one week. Japanese names took the pair above the ¥109.50 level but U.S. accounts moved the pair lower and stops were later triggered around the ¥108.80 level. Data released in Japan today saw Japan’s foreign reserves reach US$ 817.951 billion at the end of June, up a mere US$ 1.103 billion from May. These data suggest Japan continues to not intervene and is probably indicative of Japan’s sensitivity to these data as they approach the US$ 1 trillion level. All eyes are on Japan’s Upper House election this weekend to see if Japan’s Liberal Democratic Party can retain its historical stronghold on the Diet. Options traders cite a large ¥109.25 expiry at 1400 GMT today. Dollar bids are cited around the ¥108.70/ 40 levels and dollar offers are seen around the ¥109.50/80 levels. The euro came off vis-à-vis the yen today as the single currency tested bids around the ¥133.85 level after falling from the ¥134.60 level. Euro bids are cited around the ¥133.40/10 levels and offers are seen around the ¥134.90 level.
The British pound rocketed higher vis-à-vis the U.S. dollar today as cable continued its climb higher from the $1.80 handle. Major stops were reached above the $1.8500 figure and cable reached an intraday high around the $1.8560 level. Chancellor Brown spoke about next week’s Spending Review and said the U.K. will not reduce defense spending. Brown also called on the EU to liberalize many aspects of its economy. Bank of England’s Monetary Policy Committee will release its interest rate decision at 1100 GMT tomorrow and most central bank-watchers do not expect any change in rates. The acceleration higher today coincided with the triggering of the $1.2350 option barrier in the euro. Cable offers are cited around the $1.8600 figure and sterling bids are seen around the $1.8450 level. The euro came off marginally vis-à-vis the British pound today as the single currency tested bids around the £0.6660 level after testing offers around the £0.6700 figure. Euro offers are cited around the £0.6720 level and euro bids are seen around the £0.6640 level.
The Swiss franc extended its recent gains vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2255 level after running out of steam around the CHF 1.2370 level. Dealers await the release of tomorrow’s Swiss unemployment data to get a sense of the likelihood of the Swiss National Bank’s next monetary tightening. Swiss National Bank added one-week liquidity at 0.28% today, higher than yesterday’s 0.27% repo operation. The euro came off modestly vis-à-vis the Swiss franc today as the single currency tested bids around the CHF 1.5170 level and was capped just above the CHF 1.5200 figure.
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