Wednesday December 20, 2006 - 16:11:05 GMT
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Forex and Commodity Market Commentary and Analysis (20 December 2006)
The euro moved marginally higher vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3245 level and was supported around the $1.3195 level. Technically, today‚Äôs intraday high was right around the 61.8% retracement of the move from $1.3365 to $1.3050. European Central Bank President Trichet testified today and hawkishly said ‚ÄúWhile the outlook for energy prices remains uncertain, overall inflation rates are likely to increase again in early 2007 and then hover around 2 pct in the course of that year and 2008.‚ÄĚ Most traders believe the ECB will tighten monetary policy by at least +25bps in 2007. Regarding the euro and criticism from some EMU-12 finance officials that it is too strong, Trichet noted the ‚Äútendency to take the euro as a scapegoat is extraordinarily unjust, unfair, and false.‚ÄĚ Trichet added ‚Äú"Over the last eight years -- the period in which the single monetary policy has been in place -- employment has risen by 9.2 percentage points and the unemployment rate has declined by 1.9 percentage points. Let me also stress that if I compare the eight years after the euro was set up with the eight years before the euro, we created 11.73 million jobs after the euro and only 2.65 million jobs before the euro.‚ÄĚ French officials in particular have been very critical of the euro‚Äôs recent strength and today German Deputy Economy Minister Pfaffenbach reported a weaker euro would be better for Germany but noted the country can manage with a stronger currency. In U.S. news, Dallas Fed President Fisher yesterday said ‚ÄúThe risk of unacceptably high inflation still outweighs the risk of substandard economic growth. Inflationary pressures appear to have reached a stasis, despite the labor shortages in certain sectors. The bad news is that the stasis is too high a level for party poopers like me who will have no choice but to advocate tightening monetary policy further if inflation does not ratchet downward.‚ÄĚ Euro bids are cited around the US$ 1.3155 level.
The yen came off marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•118.25 level and was supported around the ¬•117.95 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from ¬•116.65 to ¬•118.30. Traders sold the yen further on escalating doubts that Bank of Japan‚Äôs Policy Board will decide to lift interest rates anytime soon. Comments from BoJ Governor Fukui yesterday highlighted the recent pullback in some economic activity but most traders continue to expect BoJ will lift interest rates in Q1 2007, before the end of Japan‚Äôs fiscal year in March. Next week‚Äôs inflation data will be closely scrutinized to see how elevated price pressures are in the Japanese economy. At present, yen money markets are discounting about a 50% chance the BoJ will lift rates in January. The Japanese government approved a draft budget of ¬•82.91 trillion for the fiscal year to March 2008, up 4.0% from the current budget, and the government plans to reduce bond issues for the second consecutive year. Data released in Japan overnight saw November convenience store sales off 1.5% y/y. The Nikkei 225 stock index climbed 1.40% to close at ¬•17,011.04. Dollar bids are cited around the ¬•117.40 level. The euro gained ground vis-√†-vis the yen as the single currency tested offers around the ¬•156.40 level and was supported around the ¬•155.80 level. The British pound and Swiss franc appreciated vis-√†-vis the yen as the crosses tested offers around the ¬•233.25 and ¬•97.50 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.8145 in the exchange-traded market, down from CNY 7.8206. As expected, the Bush administration did not label China a currency manipulator in its semi-annual report to Congress. The report noted ‚Äúmore flexibility in China‚Äôs exchange rate will help it achieve more balanced growth.‚ÄĚ Data released in China today saw November property prices in major cities climb 5.2% y/y.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.9745 level and was supported around the $1.9685 level. Technically, today‚Äôs intraday low was right around the 61.8% retracement of the move from $1.9845 to $1.9435. Many data were released in the U.K. today. First, it was reported that Q3 institutional investment was up ‚ā§4.2 billion from Q2. Second, November public sector net borrowing improved to ‚ā§9.9 billion from ‚ā§10.2 billion in November 2005. Third, November provisional M4 money supply was up 13.1% y/y and M4 lending was up ‚ā§30.3 billion. Fourth, it was reported that Q3 business investment growth was up 3.1% q/q and up 8.2% y/y. Fifth, it was reported by BBA that mortgage lending reached a record high in November while BSA reported November mortgage approvals reached their highest level ever. Sixth, CBI reported its December retail sales balance came if at a two-year high of +25, up from November‚Äôs reading of -9. These data suggest robust holiday sales activity. Minutes from Bank of England‚Äôs Monetary Policy Committee‚Äôs December rate-setting meeting were released today and they evidenced a unanimous cote to keep the headline repo rate unchanged at 5.0%. Policymakers expressed concern that a pick-up in inflation would feed into upcoming pay negotiations. Cable bids are cited around the US$ 1.9610 level. The euro gained marginal ground vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6710 level and was supported around the ‚ā§0.6695 level.
The Swiss franc lost marginal ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2165 level and was supported around the CHF 1.2110 level. Technically, today‚Äôs intraday low was just below the 38.2% retracement of the move from CHF 1.1880 to CHF 1.2270. Data released in Switzerland today saw the November producer and import price index remain unchanged m/m. Dollar offers are cited around the CHF 1.2215 level. The euro and British pound gained ground vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6050 and CHF 2.3950 levels, respectively.
The Australian dollar appreciated vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7880 level and was supported around the $0.7820 level. Technically, today‚Äôs intraday high was right around the 61.8% retracement of the move from $0.7930 to $0.7780. Data released in Australia today saw the October Westpac leading indicator climb an annualized 5.8%, up from September‚Äôs 5.3% rate. Also, a survey reported the Australian manufacturing sector expanded in the December quarter and the Australian government downgraded its GDP forecast for the fiscal year to June 2007 from 3.25% to 2.50%. Australian dollar bids are cited around the US$ 0.7810 level.
The Canadian dollar appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1430 level and was capped around the C$ 1.1535 level. Technically, today‚Äôs intraday low was right around the 76.4% retracement of the move from C$ 1.1380 to C$ 1.1590. Data released in Canada today saw October wholesale sales unexpectedly recede 0.2% to C$ 41.6 billion. U.S. dollar offers are cited around the C$ 1.1570 level.
The New Zealand dollar gained marginal ground vis-√†-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6990 level and was supported around the $0.6950 level. Data released in New Zealand today saw the current account balance print at ‚ÄďNZ$ 14.4 billion in the year to September, an improvement from the ‚ÄďNZ$ 15.1 billion reading in the year to June. Today‚Äôs data represented the first decline in some three years. New Zealand dollar bids are cited around the US$ 0.6870 level.
Gold came off vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 619.45 level and was capped around the $ 624.75 level. The dollar‚Äôs turnaround to the positive side in North American dealing and some relief that Thailand‚Äôs plans to curb speculative inflows may be short-lived took some wind out of gold‚Äôs sails. Silver came off vis-√†-vis the U.S. dollar as the pair tested bids around the US$ 12.42 level and was capped around the $12.79 level.
Crude oil appreciated vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for February delivery tested offers around the US$ 64.09 level and were supported around the $63.22 level. Traders await the release of weekly U.S. oil inventories data. Dense fog around the Houston Ship Channel is slowing the level of imports into the U.S.
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