Tuesday September 28, 2004 - 13:24:59 GMT
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Forex Market Analysis and Commentary (28 September 2004)
The euro extended its recent upswing vis-à-vis the U.S. dollar today as the single currency tested offers just below the US$ 1.2350 level, its highest level since 20 August. The pair has now gained more than 350 pips after briefly trading below the $1.2000 figure on 30 August. The common currency accelerated above the $1.2315 level during North American dealing today as traders reacted to re-established some of the long positions that were consolidated the day after the FOMC’s interest rate decision last week. The big question in the markets now is whether or not the spike in oil prices will impact global growth or inflation more. Thus far, there is generally not any evidence that the spike in energy prices is manifesting in second-round price pressures such as rising wages. Traders, therefore, are betting that the rise in energy prices will have a larger impact on global economic expansion. Data released in the eurozone today saw Italy’s Q2 jobless rate fall to 8.1% from 8.2% in Q2, the lowest level on record. EU official Regling today offered a mixed assessment of the eurozone economy, saying there it is currently supported by “growing domestic demand” but cautioned there is a “growing prospect” that the so-called Lisbon goal of rendering the eurozone economy the “most competitive” by 2010 would not be reached on account of lagging reforms. Minneapolis Fed President Stern spoke yesterday and downplayed concerns about consumer debt. Traders are very interested in this weekend’s G7 meeting in Washington, D.C. to hear their pronouncements about Asian currencies and the spike in energy prices.
The yen extended recent losses vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥111.75 level after testing bids around the ¥111.15 level. The pair has not traded at these levels since 13 August and many dealers are attributing the rise to the giant spike in the price of oil. November 2002 NYMEX crude futures traded well above the US$ 50.00 figure today, a record high. Oil import-dependent Japan is a major price-taker and accordingly, the yen is being offered. Anecdotally, the Japanese media today reported that many Japanese airlines will hike fares by some 5% in 2005 on account of oil. Stops were triggered around the ¥111.45 level during the pair’s surge higher today and its retracement has been shallow. Traders continue to gobble up Japanese fixed-income securities with today’s two-year JGB sale producing a bid/cover ration of 41.24 times. Notably, Japanese equities extended their losing streak to eight days overnight with the Nikkei 225 stock index finishing 0.40% lower at ¥10,815.57. Dollar bids are cited around the ¥111.10 level. The euro pressed higher vis-à-vis the yen today as the single currency tested offers around the ¥137.55 level and was supported around the ¥136.60 level. Stops were hit above the ¥137.00 figure during the move higher.
The British pound escalated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8155 level after finding some good demand around the $1.8075 level. Sterling has not been this strong since 23 August when it traded above the $1.8200 figure. Technically, cable has now had at least five days with at least a higher high, a higher low, or both as it extends its upturn from the $1.7815 level. Data released in the U.K. today saw Q2 business investment upwardly revised sharply to +2.6% q/q from the previous estimated of just +0.5% and was +5.9% higher y/y. Traders are interested in these data because they suggest U.K. Q2 GDP may be upwardly revised when they are released on Wednesday. Cable bids are seen around the $1.8050/25 levels. The euro moved higher vis-à-vis the British pound today as the single currency tested offers around the £0.6810 level after finding bids around the £0.6780 level.
The Swiss franc gained some ground vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2555 level after failing to get above the CHF 1.2630 level. Swissy has been locked in an uncharacteristically tight range of less than 300 pips during the month of September and the current three-month moving range has not been this muted since December 1995. Some stops were reached below the CHF 1.2600 figure today during the pair’s move downward. Dollar bids are cited around the CHF 1.2550/20 levels. The euro was little changed vis-à-vis the Swiss franc today as the single currency tested offers around the CHF 1.5530 level and was supported just below the CHF 1.5500 figure.
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