Thursday September 21, 2006 - 15:10:03 GMT
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Forex and Commodity Market Commentary and Analysis (21 September 2006)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2745 level and was supported around the $1.2680 level. As expected, the Federal Open Market Committee voted to keep monetary policy unchanged yesterday with the U.S. federal funds target rate steady at 5.25%. The Fed reported ‚ÄúThe moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market. Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.‚ÄĚ Notably, Richmond Fed President Lacker was the sole dissenter again and voted to raise interest rates by +25bps. The federal funds futures market is now pricing in about a 6% chance that rates will be lifted +25bps when the FOMC convenes in October. Data released in the U.S. today saw weekly initial jobless claims rise 7,000 to 318,000 in the latest week while continuing jobless claims fell to 2.46 million. In eurozone news, the EMU-12 current account moved back into deficit in July, reaching -‚ā¨4.8 billion from June‚Äôs revised surplus of +‚ā¨5.2 billion. July EMU-12 industrial orders will be released tomorrow. Euro bids are cited around the US$ 1.2650 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•116.65 level and was capped around the ¬•117.45 level. Technically, today‚Äôs intraday low was right around the 38.2% retracement of the move from ¬•113.95 to ¬•118.30. Data released in Japan today saw the August trade surplus climb 95.5% to ¬•200.5 billion, less-than-forecast. Bank of Japan Governor Fukui spoke today and reiterated Japanese interest rates would be tightened slowly in response to economic and inflation developments and added the economy continues to recover gradually. The Nikkei 225 stock index climbed 0.74% to close at ¬•15,834.23. Dollar bids are cited around the ¬•116.15 level. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•148.65 level and was capped around the ¬•149.20 level. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•221.25 and ¬•93.55 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.9233 in the over-the-counter market, down from CNY 7.9265, and at CNY 7.9231 in the exchange-traded market. People‚Äôs Bank of China Governor Zhou reiterated that the possibility of widening the yuan‚Äôs trading bank will be dictated by market conditions. U.S. Treasury Secretary Paulson rallied again to China‚Äôs cause and denounced trade protectionism measures as barriers to global commerce.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.8995 level and was supported around the US$ 1.8865 level. Stops were hit above the $1.8975 level, representing the 76.4% retracement of the move from $1.9090 to $1.8600. In contrast to the Federal Reserve, most traders believe Bank of England‚Äôs Monetary Policy Committee will move interest rates higher in November. Data released in the U.K. today saw the monthly industrial trends survey of the CBI report manufacturing order books reached a 21-month high this month, up on increasing export orders. Cable bids are cited around the US$ 1.8905 level. The euro depreciated vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6705 level and was capped around the ‚ā§0.6725 level.
The Swiss franc appreciated marginally vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2455 level and was capped around the CHF 1.2520 level. Data released in Switzerland today saw the August trade surplus print at CHF 577.1 million. Also, Swiss retail sales were up 2.1% y/y in July. Traders are talking about a proposed mergers and acquisitions transaction that would see Swiss insurer Zurich Financial Services and U.S. insurer St. Paul Travelers Company announce a merger in November. Dollar offers are cited around the CHF 1.2585 level. The euro and British pound appreciated vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.5915 and CHF 2.3730 levels, respectively.
The Australian dollar moved higher vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7570 level and was supported around the $0.7520 level. Chartists are eyeing the $0.7610 level as the pair‚Äôs next upside target. Traders are talking about a possible US$ 2 billion business tie-up between U.S. drug maker Hospira and Australian drugs group Mayne Pharma. Australian dollar bids are cited around the US$ 0.7495 level.
The Canadian dollar appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1185 level and was capped around the C$ 1.1285 level. Technically, today‚Äôs intraday low was right around the 38.2% retracement of the move from C$ 1.1455 to $1.1030. Data released in Canada today saw July retail sales appreciate a stronger-than-expected 1.5% m/m. U.S. dollar offers are cited around the C$ 1.1355 level.
The New Zealand dollar moved higher vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6640 level and was supported around the $0.6565 level. Data released in New Zealand today saw the June quarterly current account balance widen to ‚ÄďNZ$ 3.1 billion from the previous deficit of ‚ÄďNZ$ 2.8 billion. New Zealand dollar offers are cited around the US$ 0.6690 level.
Gold gained ground vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 583.25 level and was supported around the $574.40 level. The declining chances that the Federal Open Market Committee will lift interest rates further led to some advances in gold. Silver gained ground vis-√†-vis the U.S. dollar as the pair tested offers around the $11.08 level and was supported around the $10.81 level.
Crude oil moved higher vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for November delivery tested offers around the US$ 61.28 level and were supported around the $60.71 level. A former OPEC official noted oil prices could recede to $40 per barrel by the middle of 2007. Traders continue to monitor the nuclear standoff between Iran and the West.
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