Wednesday February 21, 2007 - 16:07:18 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (21 February 2007)
The euro came off marginally vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3110 level and was capped around the $1.3165 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $1.2875 to $1.3190. Data released in the U.S. today saw the January headline inflation rate rise 0.2% m/m, above expectations, while the core inflation rate expanded 0.3%, the largest gain since June. Core inflation has increased 2.7% over the past twelve months, the largest gain since October, significantly above the Fed‚Äôs perceived comfort zone of 1.5% to 2.0%. Federal Reserve officials have noted that inflation pressures appear to be ebbing in recent comments they‚Äôve made but have steadfastly reiterated borrowing costs may need to rise, a premise reinforced by today‚Äôs data. Comments from Fed Vice Chairman Kohn and San Francisco Fed President Yellen will be closely scrutinized later in the North American session. In eurozone news, the EMU-12 December current account surplus printed at ‚ā¨2.3 billion, up from November‚Äôs level of ‚ā¨900 million. Other data released today saw French consumer prices fall 0.3% m/m in January and decelerate to +1.2% y/y. Euro bids are cited around the US$ 1.3045 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•121.15 level and was supported around the ¬•119.70 level. Technically, today‚Äôs intraday high was right around the 23.6% retracement of the move from ¬•118.00 to ¬•122.15 level. As expected by some traders, Bank of Japan lifted interest rates by +25bps to +0.50%. BoJ Governor Fukui indicated ‚ÄúOn-year growth in core consumer prices may fall near zero in coming months due to the recent fall in crude oil prices‚ÄĚ and added Deputy Governor Iwata was against raising rates on account of future uncertainty in prices. Fukui also reiterated the central bank took into account the short yen carry trades that continue to receive a lot of attention. Fukui said ‚ÄúI do not think the yen's weakness on the whole is a distortion. The yen's declines partly stemmed from the fact that Japanese investors, including households, are increasingly making investments abroad as they shake off their habit of keeping money at home. Yen-carry trades are not the kind of thing we should squarely face up to and knock down.‚ÄĚ Fukui noted the BoJ will retain its ‚Äúaccommodative‚ÄĚ policy by slowly adjusting interest rates, did not provide a time frame for the next move higher in rates, and said the central bank does not have a specific interest rate target. The central bank also left its assessment of the economy unchanged in its monthly report released today. The Nikkei 225 stock index lost 0.14% to close at ¬•17,913.21. Dollar bids are cited around the ¬•120.55 level. The euro moved sharply higher vis-√†-vis the yen as the single currency tested offers around the ¬•158.95 level and was supported around the ¬•157.25 level. The British pound and Swiss franc appreciated vis-√†-vis the yen as the crosses tested offers around the ¬•236.35 and ¬•97.65 levels, respectively. The Chinese yuan market will reopen after the current Lunar new year holiday period. Xinhua quoted a government official who estimated the Chinese economy will expand by 9% this year.
The British pound shed ground vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.9485 level and was capped around the $1.9590 level. Technically, today‚Äôs intraday high was right around the 50% retracement of the move from $1.9260 to $1.9915. Minutes from Bank of England Monetary Policy Committee‚Äôs February meeting were released today in which policymakers voted seven-to-two to keep borrowing costs unchanged following January‚Äôs surprise +25bps monetary tightening. MPC‚Äôs newest members Sentance and Besley opted for rate hikes while the voting majority were concerned about ‚Äúexcessive tightening.‚ÄĚ Overall, most traders concluded the minutes were not as hawkish as they expected them to be. Data released in the U.K. today saw the February CBI industrial trends survey‚Äôs manufacturing order books balance improve to +4 from -9 in January, its highest level since June 1995. Cable bids are cited around the US$ 1.9415 level. The euro gained ground vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6745 level and was supported around the ‚ā§0.6715 level.
The Swiss franc came off vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2410 level and was supported around the CHF 1.2340 level. Stops were reached above the CHF 1.2400 figure, representing the 38.2% retracement of the move from CHF 1.2550 to CHF 1.2310. Swiss National Bank President Roth spike today and said the franc‚Äôs rate vis-√†-vis the euro is inconsistent with fundamentals and noted a rapid correction could occur. Roth also indicated that the current short-term rate of 2.0% was too low to contain inflation. Similar to the yen, the Swiss franc remains a carry trade vehicle and this is keeping the unit depressed. Most traders believe SNB will tighten monetary policy again next month. Dollar offers are cited around the CHF 1.2430/ 55 levels. The euro moved higher vis-√†-vis the Swiss franc as the single currency tested offers around the CHF 1.6285 level while the British pound came off vis-√†-vis the Swiss franc and tested bids around the CHF 2.4115 level.
The Australian dollar appreciated vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.7900 figure and was supported around the $0.7850 level. The pair reached its strongest showing since 24 January after Reserve Bank of Australia Governor Stevens has not contemplated a rate cut and added there is no indication that inflation will move below its target. Stevens also noted the next change in rates is likely to be higher and not lower. Data released in Australia today saw the December Westpac leading index climb 6.1% y/y to a seven-year high while the Q4 wage cost index was up 1.1% q/q and 4.0% y/y. Australian dollar bids are cited around the US$ 0.7840/ 0.7795 levels.
The Canadian dollar appreciated sharply vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1605 level and was capped around the C$ 1.1710 level. Stops were hit below the C$ 1.1620 level, representing the 38.2% retracement of the move from C$ 1.2730 to C$ 1.0925. Data released in Canada today saw December retail sales climb 2.3%, the highest monthly gain in nine years. U.S. dollar bids are cited around the C$ 1.1570 level.
Gold gained ground vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 662.19 level and was supported around the $657.25 level. Japanese interest was cited overnight and technical interest was cited closer to the US$ 650 level. According to CFTC data, speculators in U.S. gold futures lifted their net long gold positions by 15% in the week to 13 February. Silver moved higher vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 13.90 level and was supported around the $13.63 level.
Crude oil came off vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for April delivery tested around the US$ 58.10 level and was capped around the $59.16 level. Traders await weekly U.S. inventories data tomorrow and continue to monitor geopolitical tensions involving Nigeria, Iran, and other areas.
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