Thursday September 2, 2004 - 14:39:38 GMT
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GCI Financial - www.gcitrading.com
Forex Market Analysis and Commentary (2 September 2004)
The euro slumped vis-à-vis the U.S. dollar today as the single currency tested bids around the $1.2150 level after failing to get above the $1.2200 figure. All eyes are on tomorrow’s all-important August U.S. non-farm payrolls data. Many forecasts are calling for an increase between +125,000 and +175,000 new jobs but traders note that forecasts have underperformed recently. Analysts have noted that forecasts for August non-farm payrolls have been too optimistic in ten of the twelve past years. In a week that has been punctuated by relatively weaker U.S. economic data, tomorrow’s data could break the dollar’s back if it is on the low side. Data released in the U.S. today saw non-farm productivity downwardly revised to +2.5% in Q2 from +2.9%, reflecting a reduction in output. Productivity is now around +4.6% y/y compared with Q1’s +5.6% y/y rise. Also, unit labour costs were downwardly revised to +1.8% in Q2 from the previously reported +1.9% and weekly initial jobless claims climbed +19,000 to 362,000, its highest level since April, while continuing claims fell marginally. Additionally, new orders for manufactured goods climbed 1.3% in July to US$ 369.6 billion following June’s 1.2% increase. The shipments component was at its highest level ever reported and inventories climbed for the eighth consecutive month. ECB President Trichet spoke after the ECB announced its decision to not change monetary policy today. Trichet said the economic recovery in the eurozone remains “gradual” and said the latest revisions to the ECB’s growth projections are not “dramatic” but are more favourable. Trichet cited oil as a determinant of recent higher inflation rates but did not express a major concern that it could morph into second-round effects. Data released in the eurozone today saw EMU-12 industrial producer prices rise 0.4% m/m in July while German unemployment climbed 24,000, the seventh consecutive monthly increase. Traders are also paying attention to French politics where finance minister Sarkozy may leave the Cabinet pending upcoming elections. Euro bids are cited around the $1.2130 level.
The yen gained a modicum of ground vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥109.20 level after failing to get above the ¥109.65 level, around the 55-day moving average. Trading ranges in this pair have been narrower than normal lately and the dollar is a mere fifteen pips weaker than it was when trading begin this week. Bank of Japan Governor Fukui spoke today and said Japan’s economic recovery is continuing despite the markets not being impressed with recent Japanese economic data. Similarly, MoF’s Watanabe reiterated his mantra that the U.S. and Japanese economies both continue to recover. Data released in Japan overnight saw net yen outflows during the five trading days ending 27 August as Japanese accounts were net buyers of foreign equities and bonds. Also, Japan’s monetary base expanded 4.6% y/y in August, down from July’s average 4.7% rise. The Nikkei 225 stock index climbed +0.23% to close at ¥11,152.75 while the TOPIX gained 0.17% to close at ¥1,137.59. Dollar bids are seen around the ¥108.70/30 levels with some dealers noting support around the ¥107.55 level. Dollar offers are seen around the ¥110.00/¥110.30 levels with some selling pressure around the ¥110.65 level. The euro weakened vis-à-vis the yen today as the single currency tested bids around the ¥133.00 figure and was capped around the ¥133.60 level.
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