Friday July 20, 2007 - 14:51:17 GMT
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Forex and Commodity Market Commentary and Analysis (20 July 2007)
The euro gained marginal ground vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3815 level and was supported around the $1.3780 level. The $1.3830 level has been toppish for the pair this week and traders continue to talk about the psychologically-important US$ 1.40 figure. European Central Bank President Trichet today said the eurozone cannot become complacent over economic growth. The EMU-13 economy expanded 2.9% in 2006, its highest rate of growth since 2000. In U.S. news, the Federal Open Market Committee‚Äôs meeting minutes from its most recent policy deliberations were released yesterday and expressed concern with some inflation expectations as evidenced by inflation-indexed Treasury securities. The minutes read ‚Äúseveral participants emphasized that holding long-run inflation expectations at or below current levels would likely be necessary for core inflation to moderate as expected over coming quarters.‚ÄĚ Policymakers also concluded that the recent decline in core inflation ‚Äúseemed to have been depressed by transitory factors,‚ÄĚ a conclusion that is consistent with Fed Chairman Bernanke‚Äôs testimony this week that recent improvements may have been temporary. The FOMC also identified the U.S. dollar‚Äôs recent depreciation as a factor that could sustain inflationary pressures. One of the most immediate risk factors for the U.S. dollars remains the subprime mortgage woes that are impacting the U.S. economy. Yesterday, ratings agency Standard & Poors downgraded the ratings on an additional US$ 3.8 billion in subprime bonds, following its recent downgrading of US$ 5.7 billion in similar assets. Euro bids are cited around the US$ 1.3735 level.
The yen depreciated marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•122.40 level and was supported around the ¬•121.95 level. Technically, today‚Äôs intraday high was right around the 50% retracement of the move from ¬•120.75 to ¬•124.15. Capital flows data released in Japan overnight saw Japanese accounts buy a net ¬•56.8 billion in foreign bonds last week. Traders continue to closely watch the current Upper House election campaigns in Japan ahead of this month‚Äôs election. A victory by the Liberal Democratic Party is seen as cementing a +25bps interest rate hike by Bank of Japan as early as next month. Traders are also watching the economic fallout from this week‚Äôs major earthquake in Japan. Some production at all Japanese car manufacturers has been suspended. The Nikkei 225 stock index gained +0.23% to close at ¬•18,157.93. Dollar bids are cited around the ¬•120.70 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•168.85 level and was supported around the ¬•168.30 level. The British pound and Swiss franc moved higher vis-√†-vis the yen as the crosses tested offers around the ¬•251.10 and ¬•101.65 levels, respectively. The Chinese yuan weakened vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5695 in the over-the-counter market. People‚Äôs Bank of China raised its benchmark interest rates by 27bps today ‚Äď taking the one-year deposit rate to 3.33% - and lifted its six-month lending rates by 18bps. Data released in China today saw June wholesale prices up 5.4% y/y from 5.1% y/y in May. Also, the urban registered unemployment rate printed at 4.1% as of the end of June.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 2.0565 level and was supported around the $2.0480 level. The pair established another fresh multi-decade high today and traders are now eyeing the psychologically-important $2.0600 figure. Data released in the U.K. today saw June pay awards remain steady in the three months to June, according to an IRS survey. Also, GDP data released today confirmed the U.K. economy expanded more than expected in Q2, up +0.8% q/q and +3.0% on an annualized basis. These data cement expectations that Bank of England will tighten monetary policy in the coming months. Most traders believe the MPC will take the repo rate as high as +6.00% with some traders anticipating the repo rate being at +6.25% by the end of the year. Cable bids are cited around the US$ 2.0370 level. The euro weakened vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6715 level and was capped around the ‚ā§0.6735 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1980 level and was capped around the CHF 1.2065 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from CHF 1.2230 to CHF 1.1960. Data released in Switzerland today saw June producer and import prices unchanged m/m and up 2.8% y/y. Dollar offers are cited around the CHF 1.2080 level. The euro came off vis-√†-vis the Swiss franc as the single currency tested bids around the CHF 1.6580 level while the British pound moved higher vis-√†-vis the Swiss franc and tested offers around the CHF 2.4755 level.
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