Tuesday December 26, 2006 - 15:58:42 GMT
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Forex and Commodity Market Commentary and Analysis (26 December 2006)
The euro came off vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ $1.3120 level and was capped around the $1.3140 level. Many trading desks are thinly-staffed on account of the Christmas and Boxing Day holidays and liquidity is significantly reduced. Many U.S. economic data will be released tomorrow and Thursday including consumer confidence, existing home sales, weekly initial jobless claims, and the Chicago PMI survey. Eurozone data to be released this week include French housing numbers tomorrow and German GfK consumer confidence on Friday along with EMU-12 money supply figures. Any indication that U.S. economic activity and especially consumer prices may be decelerating may result in U.S. dollar weakness as traders may conclude the Federal Reserve is finishing with its long-standing tightening cycle. Many traders believe the European Central Bank will move interest rates higher in Q1. Euro bids are cited around the US$ 1.3095/ 45 levels.
The yen weakened vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•118.95 level and was supported around the ¬•118.75 level. Liquidity was thin on account of the Christmas and Boxing Day holidays. Data released in Japan overnight saw the core consumer price index rise 0.2% y/y in November while the unemployment rate ticked lower to 4.0% from 4.1% in October. Also, November household spending was off 0.7% y/y and the November corporate services price index receded for the first time in four months, off 0.1% y/y. Today‚Äôs CPI data render is less likely Bank of Japan‚Äôs Policy Board will tighten monetary policy anytime soon. Most traders believe the central bank will lift borrowing costs in Q1 before the end of Japan‚Äôs fiscal year in March. BoJ Governor Fukui spoke yesterday and said consumption and consumer prices ‚Äúwill accelerate‚ÄĚ from their current relatively weak levels. Data released in Japan yesterday saw the large firms‚Äô Q3 business sentiment index print at 6.4, down from 10.5 in September. The Nikkei 225 stock index gained 0.45% to close at ¬•17,169.19. Dollar bids are cited around the ¬•118.45/ ¬•117.95 levels. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•156.30 level and was supported around the ¬•156.05 level. The British pound and Swiss franc gained ground vis-√†-vis the yen as the crosses tested offers around the ¬•233.10 and ¬•97.55 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.8200, down from CNY 7.8220. People‚Äôs Bank of China reiterated it will ‚Äúmaintain the yuan at a stable and reasonable level‚ÄĚ and a PBOC official yesterday confirmed the central bank is ‚Äúdiversifying its foreign exchange holdings.‚ÄĚ The official indicated China will convert about US$ 12 billion of foreign currency into yuan each year.
The British pound weakened vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.9550 level and was capped around the $ 1.9600 figure. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from $1.9845 to $1.9435. The Boxing Day holiday in the U.K. has kept the pair in a tight range. December Nationwide house prices will be released on Thursday followed by mortgage lending data on Friday. Many traders believe Bank of England‚Äôs Monetary Policy Committee will lift interest rates in February. Cable bids are cited around the US$ 1.9530/ 1.9460 levels. The euro moved marginally higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6715 level and was supported around the ‚ā§0.6700 figure.
The Swiss franc came off vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2210 level and was supported around the CHF 1.2185 level. Dollar offers are cited around the CHF 1.2230 level. The euro and British pound gained ground vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6030 and CHF 2.3915 levels, respectively.
Gold moved higher vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 629.50 level and was supported around the $624.20 level. Liquidity is expected to be thin through the end of the trading year. Silver gained ground vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 12.79 level and was supported around the $12.67 level.
Crude oil weakened vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for February delivery tested bids around the US$ 61.91 level and were capped around the $63.08 level. The United Nations Security Council agreed on Saturday to impose trade sanctions on Iran on account of that country‚Äôs involvement in nuclear technology. Iran has threatened to ‚Äúuse any weapon to defend itself.‚ÄĚ OPEC will implement its recently-announced 500,000 barrels per day supply reduction on 1 February.
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