Tuesday November 7, 2006 - 15:23:11 GMT
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Forex and Commodity Market Commentary and Analysis (7 November 2006)
The euro rocketed higher vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2800 figure and was supported around the $1.2725 level. Stops were hit above the $1.2780 level, representing the 61.8% retracement of the move from $1.2980 to $1.2460. Today‚Äôs mid-term election in the U.S. is pressuring the dollar as some dollar bulls fear loss of control of the House of Representatives and possibly the Senate. A Democratic majority in Congress may roll back the Bush tax cuts and that could imperil the dollar. Cleveland Fed President Pianalto spoke yesterday and was less hawkish in her remarks while Chicago Fed President Moskow reiterated ‚ÄúTaking all of the factors on growth and inflation into account, my current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low.‚ÄĚ Moskow added ‚ÄúThus, some additional firming of policy may yet be necessary to bring inflation back to a range consistent with price stability in a reasonable period of time.‚ÄĚ March Eurodollar futures contracts are now pricing in about a 40% chance the Federal Open Market Committee will reduce the federal funds target rate to 5% in Q1 2007. In eurozone news, German September industrial output was off 0.3% m/m, below expectations, while September EMU-12 retail sales were off unexpectedly. German deputy finance minister Mirow said the ECB‚Äôs inflation forecast is consistent with the European Commission‚Äôs inflation forecast with the latter expecting 2007 inflation to measure about 2.1%. Eurogroup President Juncker today said EMU-12 growth is ‚Äúon the right track‚ÄĚ and added it is ‚Äúmore robust than we though a few months ago or a year ago.‚ÄĚ Euro bids are cited around the US$ 1.2755/ 20 levels.
The yen appreciated sharply vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•117.50 level and was capped around the ¬•118.25 level. The pair came off after Bank of Japan Governor Fukui indicated the central bank‚Äôs interest rate policy is ‚Äúforward-looking‚ÄĚ and added ‚Äúit‚Äôs not like we will be doing nothing until we see signs (of higher inflation). If the central bank changed interest rates only after confirming certain inflationary pressures, fluctuations in the economy might become too sharp.‚ÄĚ Some traders believe the BoJ will lift overnight rates by +25bps to 0.50% before the end of the year while others expect the move in Q1 2007. The yen‚Äôs recent weakness relates to the short yen carry trades put on by traders who do not expect the central bank to raise rates soon. The Nikkei 225 stock index climbed 0.18% to close at ¬•16,393.41. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•150.15 level and was capped around the ¬•150.50 level. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•224.05 and ¬•93.95 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.8745 in the over-the-counter market, down from CNY 7.8811, and at CNY 7.8738 in the exchange-traded market.
The British pound rocketed higher vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.9105 level and was supported around the $1.8985 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $1.8515 to $1.9135. Data released in the U.K. today saw October like-for-like BRC retail sales rise 2.6% y/y, up from 2.4% in September. Most traders expect Bank of England‚Äôs Monetary Policy Committee to lift its repo rate on Thursday to a five-month high. An NIESR estimate release today predicts the U.K. economy expanded 0.7% q/q in the three-months to the end of September. Cable bids are cited around the US$ 1.8895 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6705 level and was supported around the ‚ā§0.6695 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2440 level and was capped around the CHF 1.2550 level. Stops were hit below the CHF 1.2520 level, representing the 38.2% retracement of the move from CHF 1.1285 to CHF 1.3285. Data released in Switzerland today saw the October unemployment rate to 3.1%, unchanged from September‚Äôs level. Dollar offers are cited around the CHF 1.2580 level. The euro and British pound came off vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.5940 and CHF 2.3770 levels, respectively.
The Australian dollar appreciated vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7755 level and was supported around the US$ 0.7705 level. Traders await tonight‚Äôs interest rate decision from Reserve Bank of Australia in which policymakers are expected to lift borrowing costs. Australian dollar bids are cited around the US$ 0.7700 figure.
The Canadian dollar appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1255 level and was capped around the C$ 1.1305 level. Stops were hit below the C$ 1.1265 level, representing the 38.2% retracement of the move from C$ 1.1030 to C$ 1.1410. U.S. dollar offers are cited around the C$ 1.1320 level.
The New Zealand dollar rallied vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6715 level and was supported around the $ 0.6675 level. The pair continues to orbit the 50% retracement of the move from $0.5910 to $0.7465. New Zealand dollar offers are cited around the US$ 0.6870 level.
Gold extended recent offers vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 628.65 level and was supported around the $622.25 level. The pullback in the U.S. dollar and concern over the U.S. election caused the pair to move higher. Silver moved higher vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 12.74 level and was supported around the $ 12.53 level.
Crude oil weakened vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested bids around the US$ 59.62 level and was capped around the $ 60.20 level. The release of some foreign oil worker hostages in Nigeria saw the pair move lower. Traders still await fresh clues that OPEC may trim production further in December.
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