Friday November 10, 2006 - 11:53:11 GMT
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Forex: Mellon FX Daily - U.S. EditionKey Points
â€¢ JPY remains weak against the EUR â€“ machinery orders disappoint.
â€¢ China says there is no fresh initiative on reserve diversification.
â€¢ EUR-USD could slip lower today â€“ upside more challenging with range highs approaching.
â€¢ AUD still looks slightly vulnerable - EUR-SEK downside risk.
More comments from China
overnight on the theme of reserve diversification. First of all, Central bank governor Zhou said that diversification would include an examination of the currency mix as well as other investment instruments, including emerging markets. However, in early European trading he said that the comments today and yesterday were nothing new and that there were no plans to speed up the pace of diversification. While the basic theme of diversification remains in place, the latter comment could help to cap EUR-USD today. Furthermore, the top end of the current range (1.29-1.30) is approaching and this should mean that advances will become increasingly difficult. 1.2900 is the initial barrier today. Supports are at 1.2850 and 1.2820 and these could be put to the test at some point. There are no major releases to look at today, although Bernanke and Trichet will speak at the ECB conference on the significance of monetary indicators. Next weekâ€™s US data (Fed surveys, retail sales, CPI, PPI) will be significant in determining whether EUR-USD can stay within range.
French GDP was worse than expected. Q3 GDP was flat q/q compared to expectations of +0.5%, although the stagnation is slightly forgivable after the strong 1.2% q/q advance seen in Q2.
Yesterday was significant for the JPY, with EUR-JPY
making a fresh high. The previous high at 150.75 should now provide decent support and further strength looks likely in the short-term. Weaker than expected machinery orders data will also do no favours for BoJ rate hike expectations or the JPY. The latest drop suggests that the weakness in recent months is more than just volatility. The 3-mth average has now dipped lower (see chart).
Yesterdayâ€™s MPC announcement made no mention about the possibility of further rate moves and this has weighed on GBP.
This does not necessarily represent a less hawkish posture by the MPC as yesterdayâ€™s announcement was purely aimed at explaining why they raised rates rather than providing indications about the future. Their thinking about what may happen to rates in the months ahead will not become clear until next weekâ€™s Inflation Report. Key in that report will be where they are forecasting CPI in 2-3 years time, as such a projection is made on the assumption that rates move in line with (high) market expectations. Any forecast at or above target will be seen as a validating the higher rate expectations currently in place. However, more likely is that they forecast CPI just below target. EUR-GBP will retain some upside risk while above 0.6715, although 0.6750-70 should hold this latest move ahead of the Inflation Report.
has remained soft this morning following yesterdayâ€™s break lower and there is a fair chance of this extending further today. 9.05 is the initial target.
has been underperforming over the past 24 hours. Upside has been difficult in spite of the USD weakness seen elsewhere and any USD stabilisation today against the EUR will leave the AUD vulnerable to further corrective moves. 0.7600- 20 is possible.
Data/event EDT Consensus*
IT Ind prod (Sep) m/m 06.30 -0.1%
EU Bernanke/Trichet on history of monetary aggregates 08.45
Latest data Actual Consensus*
JP Machinery orders core (Sep) m/m -7.4% +0.9%
DE WPI (Oct) y/y +2.9% +3.1%
FR GDP (Q3) q/q 0.0% +0.5%
FR CPI (Oct, prel) y/y +1.1% +1.3%
FR Trade balance (Sep) -â‚¬1.3bn -â‚¬3.2bn
FR Ind prod (Sep) m/m -0.9% +0.4%
FR Manu output (Sep) m/m -1.0% +0.5%
SE Ind prod (Sep) m/m +0.5% 0.0%
NO CPI (Oct) y/y +2.7% +2.6%
NO CPIX (Oct) y/y +0.7% +0.6%
* Consensus unless stated
ï›™2005, Mellon Financial Corporation Note: Although obtained from sources believed by us to be reliable, Mellon Financial Corporation and its affiliates cannot guarantee the accuracy or completeness of the information upon which this report is based. This report does not purport to disclose the risks or benefits of entering into particular transactions and should not be construed as advice in any specific instance. The views in this report constitute our judgement as of this date and are subject to change without notice.
Ian Gunner 44 20 7163 5996 06.40 EDT Monday May 31 2005
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