Tuesday February 27, 2007 - 15:18:32 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (27 February 2007)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3230 level and was supported around the $1.3160 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $1.2480 to $1.3365. Hawkish comments from Eurogroup chairman Juncker about the need to remain vigilant on inflation kept the pair bid. Most traders believe the European Central Bank will tighten monetary policy on 8 March by +25bps and comments from ECB President Trichet later that day will be closely watched for any indication the ECB could move again this year. ECB‚Äôs Quaden reiterated the central bank‚Äôs ‚Äústrong posture of continued vigilance‚ÄĚ making a move higher next week a foregone conclusion. Data released in the eurozone today saw German January import prices off 0.7% m/m and up 0.7% y/y while French January housing starts were off 7.3% y/y. Additionally, the EMU-13 January M3 money supply expanded at an annual rate of 9.8%, unchanged from December‚Äôs level and stronger-than-expected. Traders will also pay attention to next month‚Äôs pay negotiations involving Germany‚Äôs powerful IG Metall union that is expected to seek an increase of 6.5% in wages. In U.S. news, January durable goods orders data were released today and they were off a weaker-than-expected 7.8% while the ex-transportation component was off 3.1%. Also, January existing home sales were up +3.0% to 6.46 million units and February consumer confidence improved to 112.5.
Traders are still talking about comments made yesterday by former Federal Reserve Chairman who said there is an increasing probability the U.S. economy is headed for a recession later in the year. Euro bids are cited around the US$ 1.3155 level.
The yen appreciated sharply vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•119.25 level and was capped around the ¬•120.75. Heightened geopolitical and financial markets volatility saw some short yen carry trades unwound, pushing the pair to its lowest level since 19 February. International Monetary Fund Managing Director Rato said he is ‚Äúconcerned that investors and the countries into which funds are flowing are not sufficiently attentive to the risks.‚ÄĚ Retail trade and industrial production data will be released tonight followed by consumer price inflation data later in the week. If consumer price inflation prints stronger-than-expected, the yen could appreciate further on the premise that Bank of Japan‚Äôs Policy Board may raise interest rates again this year, further eroding the attraction of the short yen carry trade. More than US$ 100 billion in yen carry trades are said to be on traders‚Äô books and a sharp move lower is more than possible. The Nikkei 225 stock index lost 0.52% to close at ¬•18,119.82. Dollar bids are cited around the ¬•118.60 level. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•157.60 level and was capped around the ¬•159.25 level. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•234.25 level and ¬•97.40 levels, respectively. The Chinese yuan appreciated sharply vis-√†-vis the U.S. dollar today as the greenback closed at CNY 7.7415 in the over-the-counter market, down from CNY 7.7535. Today‚Äôs close represents the pair‚Äôs weakest showing since the yuan revaluation of July 2005. Notably, China‚Äôs main stock index shed some 9% overnight, its largest loss in about a decade. People‚Äôs Bank of China Governor Zhou talked about the yuan today saying ‚ÄúIf the trade surplus expands then the pace of yuan appreciation may be faster‚Ä¶we are gradually moving to let market demand and supply play a bigger role in setting the exchange rate, which means we are increasing exchange rate flexibility." He added ‚ÄúIf inflationary pressure increases the central bank should consider monetary policy action, including interest rate policy. The central bank must take action to curb inflation and maintain a stable yuan. This is our responsibility.‚ÄĚ
The British pound moved marginally higher vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.9670 level and was supported around the $1.9590 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from $1.9260 to $1.9915 while today‚Äôs intraday low was just above the 50% retracement of the same range. BBA reported January mortgage levels fell to 134,200 from 140,000 one year ago while the total value of approvals rose to ‚ā§13.1 billion. These data confirm the U.K. housing sector remains relatively robust despite higher borrowing costs in the U.K. Bank of England Monetary Policy Committee member Blanchflower today said he believes U.K. inflation will fall ‚Äúpretty sharply‚ÄĚ this year. Cable bids are cited around the US$ 1.9535 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6735 level and was supported around the ‚ā§0.6710 level.
The Swiss franc extended recent gains vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2225 level and was capped around the CHF 1.2305 level. Technically, today‚Äôs intraday low was just above the 38.2% retracement of the move from CHF 1.2770 to CHF 1.1875. Data released in Switzerland today saw the UBS January private consumption indicator improve to 1.95 index points from 1.89 in December. The pair lost ground after a reported assassination attempt against U.S. Vice President Cheney in Afghanistan failed. Dollar offers are cited around the CHF 1.1655/ 90 levels. The euro and British pound came off vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.6165 and CHF 2.4010 levels, respectively.
The Australian dollar weakened marginally vis-√†-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7910 level and was capped around the $0.7945 level. Technically, today‚Äôs intraday low was right around the 76.4% retracement of the move from $0.7980 to $0.7695. Traders await Australian data this week including Q4 GDP and private sector credit growth. Australian dollar bids are cited around the US$ 0.7870 level.
The Canadian dollar was little-changed vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 1.1585 level and was capped around the C$ 1.1620 level. Technically, today‚Äôs intraday low was right around the 38.2% retracement of the move C$ 1.2730 to C$ 1.0930. Q4 GDP data will be released on Friday. U.S. dollar offers are cited around the C$ 1.1655 level.
Gold fell sharply vis-√†-vis the U.S. dollar today as the yellow metal tested bids around the US$ 677.70 level and was capped around the $687.40 level. The pair tracked crude oil lower and shrugged off the U.S. dollar‚Äôs intraday sell-off. At yesterday‚Äôs high around US$ 689, the pair has been up about 14% on the year. Silver moved lower vis-√†-vis the U.S. dollar as the pair tested bids around the US$ 14.41 level and was capped around the $14.74 level.
Crude oil weakened vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for April delivery tested bids around the US$ 60.27 level and were capped around the $61.61 level. Further hawkish comments from Iranian leaders regarding that country‚Äôs nuclear ambitions were made today and traders expect further sanctions from the United Nations Security Council. Most dealers do not expect OPEC to change output levels when officials convene in Vienna next month.
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