Thursday December 14, 2006 - 15:35:06 GMT
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Forex and Commodity Market Commentary and Analysis (14 December 2006)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3165 level and was capped around the $1.3250 level. Stops were hit below the $1.3185 level, representing the 76.4% retracement of the move from $1.3665 to $1.1640. The pair moved to intraday lows after the release of stronger-than-expected U.S. November import prices that saw prices up 0.2% m/m, up from the revised -2.3% m/m in October. These data kept the euro soft because they imply additional pressure on the Fed to not declare an end to its long-standing tightening cycle. Other data released in the U.S. today saw weekly initial jobless claims decline 20,000 to 304,000 while continuing jobless claims were off 33,000 to 2.48 million. In eurozone news, EMU-12 Q3 labour costs rose 2.0% y/y, down from Q2‚Äôs revised 2.3% climb, while Q3 employment was up 0.4% q/q and 1.4% y/y. European Central Bank released its December monthly bulletin today and remain hawkish in stating ‚ÄúLooking ahead, acting in a firm and timely manner to ensure price stability in the medium term is warranted. The governing council will monitor very closely all developments so that risks to price stability over the medium term do not materialize.‚ÄĚ Turning to international developments, the ECB reported ‚ÄúEvidence of a moderation in US economic activity, as well as news confirming robust economic growth in the euro area, appears to have influenced market expectations concerning the relative economic outlook for the two economic areas, thereby weighing on the US dollar.‚ÄĚ Germany‚Äôs Ifo upwardly revised its 2006 German GDP growth forecast to 2.5% from 1.8%. Euro bids are cited around the US$ 1.3065 level.
The yen came off marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•117.70 level and was supported around the ¬•117.25 level. Technically, today‚Äôs intraday low was right around the 50% retracement of the move from ¬•119.75 to ¬•114.45. A Nikkei report suggesting Bank of Japan is unlikely to lift interest rates this month so that policymakers can assess inflation, personal spending, and U.S. economic developments dented the yen. Tomorrow‚Äôs quarterly Bank of Japan tankan survey is expected to show a minor increase in business sentiment. The markets are predicting about a 15% to 20% chance ‚Äď as measured by the yen‚Äôs overnight index swaps ‚Äď the BoJ will move rates higher next week and this is down from near 70% a couple of weeks ago. Data released in Japan today saw November corporate failures decline 15.2% m/m while Tokyo-area November condominium sales were down 13.5% y/y. The Nikkei 225 stock index gained 0.82% to close at ¬•16,829.20. Dollar bids are cited around the ¬•116.50 level. The euro moved lower vis-√†-vis the yen as the single currency tested bids around the ¬•154.95 level and was capped around the ¬•155.55 level. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•230.75 and ¬•96.85 levels, respectively. The Chinese yuan appreciated sharply vis-√†-vis the U.S. dollar today as the greenback closed at CNY 7.8185 in the over-the-counter market, down from CNY 7.8265, a post-revaluation low. U.S. Treasury Secretary Paulson today called on China to make the yuan more flexible. Both Paulson and Federal Reserve Chairman Bernanke will be meeting with Chinese officials over the next few days. Data released in China today saw the M2 money supply up 16.8% y/y as of the end of November.
The British pound moved lower vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.9605 level and was capped around the $ 1.9710 level. Technically, today‚Äôs intraday high was just above the 61.8% retracement of the move from $1.9845 to $1.9465 while today‚Äôs intraday low was right around the 38.2% retracement of the same range. Data released in the U.K. today saw November retail sales climb 0.3% m/m, above expectations, while a Bank of England survey reported U.K. inflation expectations rose to 2.7% last month from 2.5% in August. CBI reported the U.K. economy will expand further in 2007 on account of stronger government expenditures. Cable bids are cited around the US$ 1.9555 level. The euro moved marginally lower vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6710 level and was capped around the ‚ā§0.6730 level.
The Swiss franc weakened significantly vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2145 level and was supported around the CHF 1.2025 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from CHF 1.2535 to CHF 1.1875. As expected, Swiss National Bank lifted interest rates by 25bps today but the Swiss franc moved lower after the central bank lowered its 2007 inflation forecast to 0.4% from the previous 1.1% estimate. The markets now believe the SNB may hike one additional time early next year before ending its tightening cycle. Interestingly, SNB lifted its 2007 GDP forecast to 2.0% from 1.8%. SNB Chairman Roth indicated the Swiss franc‚Äôs recent weakness contradicts the Swiss economy‚Äôs performance and verbally intervened by saying authorities are closely monitoring exchange rates. Dollar offers are cited around the CHF 1.2210 level. The euro and British pound moved higher vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.5990 and CHF 2.3820 levels, respectively.
The Australian dollar came off vis-√†-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7810 level and was capped around the $0.7875 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $0.7415 to $0.7930. Australian dollar bids are cited around the US$ 0.7735 level.
The Canadian dollar gained marginal ground vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1535 level and was capped around the C$ 1.1575 level. Technically, today‚Äôs intraday high was right around the 76.4% retracement of the move from C$ 1.1770 to C$ 1.0930. Data released in Canada today saw the October value of manufacturing shipments fall 0.1% to their lowest level since December 2004. U.S. dollar offers are cited around the C$ 1.1655 level.
The New Zealand dollar weakened vis-√†-vis the U.S. dollar today as the kiwi tested bids around the US$ 0.6860 level and was capped around the C$ 0.6945 level. New Zealand dollar bids are cited around the US$ 0.6710 level.
Gold depreciated vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 626.95 level and was capped around the $629.55 level. Stronger-than-expected U.S. import prices reduced intraday demand for the pair. Gold is now off about 15% from its 2006 yearly high around US$ 730. Silver moved marginally higher vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 13.91 level and was supported around the $ 13.77 level.
Crude oil gained ground vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for January delivery tested offers around the US$ 62.71 level and was supported around the $61.41 level. OPEC policymakers convened in Nigeria today and indications are that OPEC will reduce output in February by at least 500,000 barrels per day.
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