Friday July 30, 2004 - 15:28:54 GMT
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Forex Market Commentary and Analysis (30 July 2004)
The euro reversed some of its recent losses vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2120 level after the release of weaker-than-expected preliminary Q2 U.S. GDP data. Economic expansion in the U.S. decelerated to +3.0% for the quarter that ended one month ago while Q1 economic growth was upwardly revised to +4.5% from +3.9%. A growth rate of 3.5% was expected for Q2 and traders expressed disappointment with real personal consumption expenditures at +1.0% and a 2.5% decrease in durables purchases. Gross provide domestic investment added 1.97% to the quarterly growth rate while PCE added 0.73%. Fed officials were likely disheartened by the increase in PCE because the U.S. consumer has been the lynchpin of economic activity in the U.S. The next estimate of Q2 GDP activity is expected on 27 August. Other U.S. data released today was better than the GDP data as the final July University of Michigan consumer sentiment index was reported at 96.7, up from 95.6 in June. Also, the Chicago PMI number came in at 64.7, better-than-expected while the July New York NAPM report was positive. Technically, the euro failed to get above $1.2120/25 resistance and its fall back below the $1.2100 figure was bearish. Traders are paying close attention to the price of crude oil futures and the rate reached a 21-year high around the $43.50 level today. ECB’s Caruana said the outlook for eurozone inflation remains “reasonably good” but cited oil as a “risk factor.” Data released in the eurozone today saw EMU-12 HICP rise 2.4% in July, unchanged from June but higher than most expectations. Italian HICP fell more-than-expected in July, off 0.3% m/m with the y/y rate slowing to +2.2%. Additionally, German June retail sales rose sharply in June, exceeding most expectations, while the French unemployment rate rose unexpectedly last month. Moreover, EMU-12 economic sentiment rose in July and the EU Commission’s EMU-12 business climate index rose. Central Bank of Ireland today indicated it does not see any indication of a second-round effect of inflationary pressures in the eurozone. Euro bids are cited around the US$ 1.1975 level.
The yen retraced some of its recent losses vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥112.25 level before coming off to the ¥111.10 level during North American dealing. Stops were hit below the ¥111.70 level during the retreat and bids around the 100-hour moving average supported the pair after the release of a mixed bag of U.S. economic data. Many data were released in Japan overnight that saw the jobless rate at 4.6% in June, unchanged from May. Also, data were released that confirmed a continuation in deflation in Japan with the core consumer price in Tokyo falling 0.1% y/y in July, the 58th consecutive monthly decline. Core CPI for the entire country was off 0.1% y/y, the fourth consecutive monthly fall. Other data released today saw June wage earner household spending fall 1.3% y/y in June while June housing starts were off 7.4% y/y in June. Technically, many chartists believe the pair must retrace to the ¥110.80/25 levels before the dollar’s recent appreciation becomes imperiled. Japan’s government today reported it did not intervene in the FX markets during June and is now believed to have been absent since mid-March. The Nikkei 225 stock index gained a healthy 1.88% to close at ¥11,325.78. Dollar bids are cited around the ¥111.10 level. The euro came off vis-à-vis the yen today as the single currency tested bids around the ¥134.05 level after running out of steam around the ¥135.10 level overnight.
The British pound gained modest ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8245 level but was unable to test technical resistance seen around the US$ 1.8260 level. Bids supported the pair around the US$ 1.8120 level during European dealing but the pair retreated back below the $1.8200 figure during North American dealing. The U.K. NIESR today reported there is a “strong case” for a 50bps monetary tightening by Bank of England’s Monetary Policy Committee next week. NIESR also reported CPI inflation is likely to exceed the MPC’s 2.0% target by the end of 2005 and called the BoE’s recent monetary policy moves as “leisurely.” Cable bids are cited around the $1.8080 level. The euro weakened marginally vis-à-vis the British pound today as the single currency tested bids around the £0.6615 level and was unable to get through the £0.6650 level.
The Swiss franc gained some ground vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2690 level and was capped around the $1.2825 level. The Swiss KOF leading indicator came in at 1.10 in July, up from 1.02 in June, adding to views that the Swiss economy will improve in H2 2004. Swiss National bank added spot/ next liquidity at 0.27% today and two-week liquidity at 0.28% today. Dollar bids are cited around the CHF 1.2690/40 levels. The euro weakened vis-à-vis the Swiss franc today as the single currency tested bids around the CHF 1.5370 level and could not get through the CHF 1.5430 level.
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