Wednesday April 19, 2006 - 14:03:08 GMT
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Forex and Commodity Market Commentary and Analysis (19 April 2006)
The euro backed away from the U.S. dollar today as the single currency tested bids around the US$ 1.2295 level and was capped around the $1.2370 level. Technically, the pair traded just above the $1.2365 level, representing the 76.4% retracement of the move from $1.2590 to $1.1635. The dollar, however, is near seven-month lows across the board and the U.S. Dollar Index is just above lows dating back to January of this year and then lows dating back to September 2005. Traders moved out of dollars yesterday after fairly dovish Federal Open Market Committee meeting minutes were released that signaled interest rates are near a peak. The minutes read ‚ÄúMost members thought that the end of the tightening process was likely to be near and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy‚Ä¶ The effects on spending of the substantial increase in short- and intermediate-term rates since June 2004 had probably not yet been fully felt.‚ÄĚ Some Fed officials did not want the policy statement that read ‚Äúsome further tightening may be needed‚ÄĚ and some ‚Äúwere concerned that market participants might not fully appreciate the extent to which future policy action will depend on incoming economic data, especially when an end to the tightening process seems likely to be near.‚ÄĚ San Francisco Fed President Yellen yesterday noted the Fed is ‚Äúhighly alert‚ÄĚ to the risk of too much monetary tightening. The fed funds futures market is now pricing in only about a 25% to 30% chance that rates will be raised at the June Federal Open Market Committee meeting. Data released in the U.S. today saw March headline consumer price inflation print at +0.4%, consistent with expectations, while the ex-food and energy core rate printed at +0.3% and the annualized core rate printed at +2.1% y/y. In eurozone news, German March producer price inflation was up 0.5% m/m and 5.9% y/y. Euro offers are cited around the US$ 1.2365/ 1.2415 levels.
The yen came off vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•117.65 level and was supported around the ¬•116.75 level. Stops were hit above the ¬•117.40 level, representing the 50% retracement of the move from ¬•121.40 to ¬•113.40. Data released in Japan today saw the February leading index upwardly revised to 90.9 from a preliminary reading of 80.0. A Liberal Democratic Party official indicated the rise in long-term Japanese interest rates may not hurt the economy immediately. Traders continue to be curious as to when Bank of Japan‚Äôs Policy Board will lift interest rates from their near zero per cent level. The February tertiary activity index and all-industry activity index will be released in Japan tomorrow night. The Nikkei 225 stock index climbed 0.68% to close at ¬•17,350.12. Dollar bids are cited around the ¬•116.45 level. The euro gained marginal ground vis-√†-vis the yen as the single currency tested offers around the ¬•144.80 level and was supported around the ¬•144.25 level, just short of a fresh lifetime high. The British pound moved higher vis-√†-vis the yen as sterling tested offers around the ¬•210.00 figure while the Swiss franc was mostly flat vis-√†-vis the yen, testing bids around the ¬•91.95 level. The Chinese yuan appreciated strongly vis-√†-vis the U.S. dollar today as the greenback closed at CNY 8.0135 in over-the-counter trade, down from CNY 8.0240, and at CNY 8.0149 in the exchange-traded market. All eyes are on President Hu as he visits President Bush tomorrow to discuss very political issues including foreign trade and currency values. China‚Äôs Commerce Ministry today raised its 2006 GDP forecast to 9% from 8%.
The British pound came off marginally vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.7795 level and was supported around the $1.7875 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from $1.9225 to $1.7045. Minutes from the April Bank of England Monetary Policy Committee were released today and it confirmed a 7-1 vote in favour of keeping the headline repo rate unchanged at 4.50%. Outgoing external member Nickell was again the lone policymaker to vote for a monetary easing. Policymakers speculated in the minutes that the U.K. economy may be ‚Äúrebalancing away‚ÄĚ from final private domestic demand and consumption towards net exports. Furthermore, policymakers added ‚ÄúSuch a rebalancing would have little impact on domestic inflationary pressure, despite slower consumption growth.‚ÄĚ Cable has not been this strong since 25 January. Cable offers are cited around the US$ 1.7945 level. The euro moved lower vis-√†-vis the British pound as the single currency tested bids around the ¬£0.6890 level and was capped around the ¬£0.6935 level.
The Swiss franc depreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2665 level and was capped around the CHF 1.2760 level. Technically, today‚Äôs intraday high is around the 50% retracement of the move from CHF 1.2240 to CHF 1.3285. Data released in Switzerland today saw March producer and import prices up 0.1% m/m and 1.6% y/y, consistent with forecasts. Dollar bids are cited around the CHF 1.2640 level. The euro and British pound moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.5690 and CHF 2.2745 levels, respectively.
The Australian dollar gained marginal ground vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7445 level and was supported around the US$ 0.7410 level. Data released in Australia today saw the February Westpac-Melbourne leading index of economic activity rise 0.4 index points from January‚Äôs level. Australian dollar offers are cited around the US$ 0.7450 level.
The Canadian dollar was little-changed vis-√†-vis the U.S. dollar today as the greenback tested offers around the C$ 1.1415 level and was supported around the C$ 1.1375 level. Technically, today‚Äôs intraday high was right around the 76.4% retracement of the move from $1.1300 to $1.1770. U.S. dollar offers are cited around the C$ 1.1460 level.
The New Zealand dollar gained ground vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6360 level and was supported around the US$ 0.6290 level. New Zealand dollar offers are cited around the US$ 0.6375 level.
Gold extended its recent surge vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 626.74 level and was supported around the $621.20 level. Political instability in the Middle East, tensions with Iran, and inflation jitters continue to contribute to gold‚Äôs advances. Silver moved higher vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 14.30 level and was supported around the $13.90 level. Platinum and copper also reached new lifetime highs.
Crude oil moved higher vis-√†-vis the U.S. dollar today as light, sweet crude for June delivery tested offers around the US$ 73.05 level and was supported around the $ 72.69 level. Tensions involving Iran and the international community continue to press energy prices higher. The press reported United Nations Security Council members and Germany failed to reach an agreement on the next step to take against Iran. The International Atomic Energy Agency will present a report to the Security Council by 28 April.
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