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News & Analysis:

December 8, 2:00 AM: EUR/$..0.8885 $/JPY..100.54 GBP/$..1.4426 $/CHF..1.7040

European Trading Preview by Jes Black

The dollar was unmoved in Tokyo trading as the markets consolidated and awaited this morning's release of US jobs data. The dollar did make gains against the European majors yesterday with the single currency retreating from its latest two-and-a-half month high of $0.8978 made in the European session. The euro then fell to the $0.8880s, and the Swiss franc dropped from 1.6999 to the 1.7020s, where they both remain. The pound and yen have held up at yesterday's New York close of $1.4422 and 110.55 respectively. FX activity subsequently stopped in Tokyo trading as dealers wait for the crucial labor report from the US. The report is expected to show the creation of 120K-150K jobs in November, from October's 137K and September's 195K. The unemployment rate is expected to regain the 4.1% level after standing at 3.9% in September and October and average hourly earnings are seen up 0.3%, which would raise the year on year growth level to 3.9%--its highest level since January 1999. The US labor report is expected to provide quantitative evidence of Tuesday's speech by Greenspan which pointed to a slowing economy and implied the removal of the tightening bias because of a shrinking pool of workers. Markets will therefore pay close attention to whether there has in fact been a loosening in labor markets because this would imply a shift to a neutral bias at the Fed's December 19th meeting since the shrinking pool of workers is one of the Fed's main concerns. The markets are likely to send the euro above 90-cents if the report shows a higher than expected unemployment rate.

The key event in Europe today will be the Swiss National Bank's announcement of whether it leave rates unchanged when it meets before its quarterly press conference. Slower than expected Q3 GDP released yesterday showed growth slowing to 2.0% on an annualized basis from the second quarter, which grew by 2.8%. Compared to Q3 1999, GDP rose 3.6%, down from the 3.8% in Q2. Government figures expect 2001 growth at 2.3% from this year's expected 3.3%. With these signs of cooling growth, the SNB is expected to keep short-term rates unchanged at the current 3-month LIBOR range of 3-4%. But signs of accelerating inflation (1.9% in November), have pushed several banks to expect a tightening, with Swiss bank UBS expecting as much as 50 bp rates hike. The SNB meeting announcement could come as early as 7:00 AM, so the Swiss franc could be well bid ahead of it. Previously, market sentiment had seen a potential rise in interest rates, which fueled a strong rise in the Swiss franc against both the euro and dollar. The Swiss franc's recent rise against the dollar is helping to contain inflation.

In Japan, the yen fell against major currencies on concern that the economic recovery has a long way to go. The nation's household spending which makes around 60% of GDP fell 0.2% in October from a month earlier. Analysts say that USD/JPY is likely to stay in a range on Friday's session. The Nikkei ended down 23 points, or 0.15% to 14696, following the 1.5% decline in the Nasdaq yesterday. More warnings from companies over slowing earnings and sales kept US stocks under pressure on Thursday. In the tech sector, chips, telecommunications, hardware and software shares fell across the board, amid negative news for Motorola and Microsoft. The Dow Jones Industrial Average closed down 47.02 at 10,617.36, while the S&P 500 index fell 7.92 to 1,343.54. European bourses ended lower yesterday also, and the FTSE and Dax are expected to open in negative territory today.

December 7, 7:00 PM: EUR/$..0.8876 $/JPY..110.53 GBP/$..1.4441 $/CHF..1.7028

Daily Open Japanese Trading Preview by Darko Pavlovic

No data coming from Japan today.

The euro is trading around $0.8874, falling from a 2 and half-month highs as traders await for US unemployment data to see there will be another indication of slowdown in the biggest economy. The euro rose near $0.8975 overnight, its highest level since September 22 joint G-7 Central banks intervention, but failed to reach $0.9000 level. The correction comes after the single currency gained 7% vs. the dollar in the past two weeks. Analysts expect that if tomorrow's unemployment data show another cooling in the US economy the euro could soon reach $0.9000 level. US Tomorrow's labor report is expected to show the creation of 120K-150K jobs in November, from October's 137K and September's 195K. The unemployment rate is expected to regain the 4.1% level after standing at 3.9% in September and October. Average hourly earnings are seen up 0.3%, which would raise the year on year growth level to 3.9%--its highest level since January 1999. A Seasonally strong payroll figure due to a spurt of hiring in November might boost the figure, but colder than usual weather might have crimped hiring. The jobless rate, will be the key figure to watch and figure of 4.1% unemployment would certainly weigh further on the dollar. The euro hit four-month highs vs. the yen above 99 yen in New York, but pulled back and is now hovering around 98.14. Markets keep an eye on legal developments with Presidential race in the US and future developments will also weigh on the dollar. The latest news show that Florida's Supreme Court heard attorneys for Democrat Gore and Republican Bush over whether thousands of punch-card ballots should be recounted. Traders are also watching three-day EU summit in Nice and developments concerning enlargement of the community and institutional reforms, which could have impact on the euro. In the meantime Bundesbank President Welteke said that despite recent rise of the single currency, the euro exchange rate is still unsatisfactory and that future developments of the European currency depend on slowdown in the US.

The yen is hovering around 110.57 after Japan's most widely watched measure of money supply M2 plus certificate of deposits grew 2.1 in November from a year earlier.November Japan wholesale price index was down 0.1% from October and down 0.2% from a year earlier, showing that deflation risks remain alive in the second biggest economy. Japan November bank lending fell 4.0% form October, the 35th consecutive month of decline. The Japanese currency fell against major currencies on concern that the economic recovery has a long way to go. The nation's household spending which makes around 60% of GDP fell 0.2% in October from a month earlier. Analysts say that USD/JPY is likely to stay in a range on Friday's session. Demand and supply conditions appear to restrain a movement in the USD/JPY. In the short run, USD/JPY is likely to be well supported when around 110.00 area. Without strong incentives, a movement in the USD/JPY is likely to be limited. After moving in a tight range between 14720.36 and 14834.42, the Nikkei Stock finished Thursday down 169.01 points, or 1.1%, at 14720.36.




December 7, 4:00 PM: EUR/$..0.8898 $/JPY..110.50 GBP/$..1.4444 $/CHF..1.6990

Euro Eases, Markets Await US Jobs by Ashraf Laidi

It was mostly a day of mostly consolidation in FX markets, as players positioned themselves for tomorrow's crucial US labor report. In the absence of major US data, the single currency backed down from its latest 2 and half month highs against the dollar, before resting around the 89-cent level. The euro had a mixed day in terms of economic data. German industrial output figures showed an unexpected decline of 0.3% in October after September's -1.0%, implying that the next business IFO survey will show a decline once again. Nonetheless, Eurozone September retail sales rose 0.4% beating estimates of a 0.8% decline. The euro shrugged off the output numbers climbing to 89.74 cents, its highest level since the first ECB intervention in Sept 22. The earlier rally in the euro was also reflected in fresh 3 and half month highs against the yen (99.18 yen) and 4 and half month highs against the pound (62.07 pence). Bundesbank Chief Ernst Welteke showed cautioned today that the euro remained too low despite its recent rebound, adding that the currency's recovery depended on the US economic performance. Welteke said the EUR/$ rate remained "unsatisfactory" and said he could not tell whether the rate had turned a corner. Welteke also added that although a slowdown in the US economy would help the euro, a US hard landing would have serious growth repercussions on world growth and particularly the Eurozone and hence, its currency. Welteke also gave a bright outlook for German growth saying growth will hit 3%, followed by continued growth as corporate tax cuts make their way in into the system.

$/JPY and cable showed uneventful activity centering around the 110.50 and 1.440 levels.

US technology stocks took another hit after Motorola said today it would report lower-than-expected results in the Q1 2000 and Q4 2001 due to sluggish conditions in the semiconductor industry. Separately, Goldman Sachs published a negative report on Microsoft, cutting its 2001 earnings outlook. Dow dropped 47 pts to 10617, NASDAQ fell 43 pts to 2752.

Tomorrow's release of the much anticipated US labor report is expected to show the creation of 120K-150K jobs in November, from October's 137K and September's 195K. The unemployment rate is expected to regain the 4.1% level after standing at 3.9% in September and October. Average hourly earnings are seen up 0.3% which would raise the year on year growth level to 3.9%--its highest level since January 1999. A Seasonally strong payroll figure due to a spurt of hiring in November might boost the figure, but colder than usual weather might have crimped hiring.At any rate, the jobless rate, will be the key figure to watch and a 4.1%--albeit expected--would certainly weigh further on the dollar. The euro could then extend its gains towards the 90-cent resistance, based on the grounds of further slowing in the US economy, and an expected narrowing in growth differential relative to the Eurozone.

The Swiss National Bank is expected to leave rates unchanged when it meets before its quarterly press conference tomorrow. Slower than expected Q3 GDP released today at 2.0% on an annualized basis from the second quarter, which grew by 2.8%. Compared to Q3 1999, GDP rose 3.6%, down from the 3.8% in Q2. Government figures expect 2001 growth at 2.3% from this year's expected 3.3%. With these signs of cooling growth, the SNB is expected to keep short-term rates unchanged at the current 3-month LIBOR range of 3-4%. But signs of accelerating inflation (1.9% in November), have pushed several banks to expect a tightening, with Swiss bank UBS expecting as much as a 50 bp rate hike.The SNB meeting announcement could come as early as 7:00 AM, so the Swiss franc could be well bid ahead of it.

December 7, 7:00 AM: EUR/$..0.8941 $/JPY..110.67 GBP/$..1.4479 $/CHF..1.6954

Dollar Continues Correction by Jes Black

At 8:30 AM US December 2 Jobless Claims (exp 342k, prev 358k) At 3:00 PM US October Consumer Credit US$ (exp 7.7bln, prev 6.5bln)

The dollar continued its correction today after the US stock market fell amid concerns the slowdown in the US may take some time to reverse. Yesterday's 3.2% decline in the Nasdaq, after a brilliant 10.5% record gain the day before, undermined the dollar as investors grew nervous about more bad news to come. The euro rose to an 11-week high of $0.8974 from yesterday's New York close of $0.8917. Gains the euro racked up against the dollar allowed it to rise to a 4-month high against the Japanese currency at 99 yen. Another 4-month low was the dollar/Swiss franc, which dropped to 1.6908 from Wednesday's close at 1.6999. Sterling took the opportunity to extend its 10-day run on the dollar from $1.4423 yesterday to a high of $1.4494. However, the overall impetus for the rally remains the weakness of the dollar. Moreover, European currencies are likely to consolidate before the release of jobless claims today, and overall jobs data on Friday. This morning's jobless claims data is expected to show a sharp weakening in the economy and tomorrow's November employment report is expected to show the unemployment rate rising to 4.1% from the 30-year low of 3.9% in October. Should these figures come in higher than expected, it could add to the speculation of a hard landing in the US economy. Friday's scheduled report on November employment is also considered to be a crucial indicator for the Fed whether the economic cooling so far is taking pressure off wages.

On the other side of the Atlantic today's release of the Eurozone PPI y/y proved to be the highest number on record, but matched expectations. The data showed that headline PPI was driven by October's renewed rise in oil prices, with the intermediate goods component increasing 13.4% y/y from September's 13.0%. However, the data showed little sign of higher energy inputs feeding through to finished goods prices yet. Meanwhile, oil prices crept higher today, continuing to reverse a four-day slide as cold weather sent fuel prices soaring. US light crude futures were once again back above $30 a barrel after slumping to a four-month low at $28.25 on Wednesday. Germany's October industry output fell s/a 0.3% vs. -1.0% in September. The data was below the market's consensus expectation of a slight rise of 0.2% m/m gain in October. In other news, EU Trade commissioner, Lamy, said that today's EU summit in Nice could have severe consequences for the resurgent euro and the Eurozone economy if they cannot settle several divisive issues among the 15-member union.

The BoE announced this morning, as expected, that they left the key official interest rate unchanged at 6.0%. The Swiss economy also showed a slight deceleration in Q3, reinforcing views that growth had peaked in the first half of the year, and that interest rates may not rise much more if at all. Switzerland's GDP s/a rose at an annualized rate of 2.0% compared with Q2's 2.8% growth rate. A government advisory panel forecast Swiss growth would slow to 2.3% in 2001 from 3.3% this year as domestic and foreign demand eased slightly. The slowdown has affirmed market speculation that the SNB would announce on Friday that it was going to hold interest rates steady. Previously, market sentiment had seen a potential rise in interest rates, which fueled a strong rise in the Swiss franc against both the euro and dollar. The Swiss franc's recent rise against the dollar is helping to contain inflation.

European bourses opened in negative territory after the Nikkei ended down 169 points, or 1.15% to 14720. The Dow Jones dropped yesterday 234.34 pts, or 2.1%, to 10664.38 after jumping 338.62, or 3.2%, the previous session. The Nasdaq Index fell 93.31, or 3.2%, to 2796.49 after rising 274.05 pts, or 10.5%, on Tuesday. Equities dropped after warnings from Apple Computer and Bank of America fueled worries about earnings and left the market unable to build on the previous day's record gains. US stock markets are seen mixed at the open, with Dow futures up 7, while the Nasdaq is down 15 points.

 

Article submitted 4 times daily by ForexNews.com, the online source for foreign exchange information.

ForexNews.com is a service provided by MG Financial Group.

MG Financial Group, a privately held company based in New York, has been offering internet FOREX market making services since April 1997. The focus of MG’s business is sophisticated self-traders. MG Financial Group clears over one billion dollars in transactions per month

 

 
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Last modified: April 04, 2001

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