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News & Analysis:

January 25, 2:00 AM: EUR/$..0.9229 $/JPY..117.70 GBP/$..1.4550 $/CHF..1.6552

European Trading Preview by Jes Black

At 4:30 AM UK December Non EU Trade (exp -2.4bln, prev 2.3bln)UK December Visible Trade (exp -2.4bln, prev 2.5bln)At 6:00 AM E-11 November Export Trade 1st release (exp n/f, prev 94.6 bln)E-11 November Import Prices 1st release (exp n/f, prev 90.9 bln)E-11 November Trade Balance 1st release (exp 1.1bln, prev 273.7 mln)E-11 November Trade Balance revised (exp n/f, prev -0.4bln)E-11 October Export Prices revised (exp n/f, prev 86.8 bln)E-11 October Import Selim revised (exp n/f, prev 87.3 bln)

Markets have bid up the dollar ahead of an important speech by Greenspan today. Even though he is addressing the Senate over fiscal policy, Greenspan may comment on the slowing US economy and hint at what extent interest rates will fall. Markets have rallied behind the dollar on speculation that the Fed may cut interest rates by another 50 bps. Recall that the main reason for the euro's rebound of the past 2 months has been weakness in the US. So, now that the Fed has sent clear signals of its resolve to stimulate the economy, markets are once again showing confidence in the US currency.

The euro recovered slightly, edging up to around $0.9225, barely avoiding a harmful breach below the key 92-cent mark. After breaking support at 93.50 followed by 93-cents and key backing around 92.60, sentiment has turned sour as traders abandon strategic long euro positions. Analysts also say that investors became frustrated by the single currency's failure to break 96-cents despite the weak data and clear slowdown in the US economy. Next support seen at $0.9210, followed by 91.65-70 and 91-cents. The euro is also down against the yen, trading around 108.40 yen. Major support lies at 108.00 yen. Also weighing on the single currency was the report by the 'Euroframe' group of institutes which predicted economic growth of 2.8% this year and 2.7% next year - around 0.3 percentage points below rates implied in recent forecasts from the European Commission and European Central Bank.

Sterling stabilized around 1.4540s after falling to a low of $1.4520 in Asian trade. Cable fell from a high of 1.4696 yesterday after the minutes from this month's Bank of England Monetary Policy Committee meeting showed that the 9-member group voted by the slimmest margin to keep interest rates unchanged at 6%. The minimum majority implies that an easing policy bias is gradually engulfing the 9-member Committee, thus making a 25 bp rate cut next month a near certainty. The Bank reasoned that cutting rates following the Fed's surprising move earlier in the month would "send a misleading signal" because the "circumstances in the UK were significantly different from those which had prompted the FOMC to lower" rates. Nest support seen at 1.4520 backed by 1.4475.

The Nikkei ended down 90 points, or 0.65% to close at 13803. This is the third consecutive decline after seven days of uninterrupted gains supported the index from a fall to two-year lows. Tokyo shares fell as investors stayed on the sidelines ahead of the closely watched testimony from Fed Chairman Greenspan. European bourses ended higher as the prospects for a rate cut ran through the world indexes. The FTSE ended up 0.8% as investors celebrated the prospect of a cut in domestic interest rates, possibly as soon as the next meeting of the Bank of England's monetary policy committee, scheduled for February.

January 24, 7:00 PM: EUR/$..0.9235 $/JPY..117.85 GBP/$..1.4546 $/CHF..1.6585

Daily Open Japanese Trading Preview by Darko Pavlovic

No data coming from Japan today

The dollar is trading around 117.86 yen, after Japan's news agency quoted that an LDP official stated that White House Economic Adviser Lawrence indicated the US would tolerate a dollar level of 120 yen. $/JPY jumped by more than half a yen to 117.75 within minutes after the comments. Even though the White House disproved Jiji's reports, the Japanese currency sustained falling lower after US rating agency S&P placed the rating of 4 Japanese banking stocks under Credit Watch, implying negative prospects for the banks. S&P placed Fuji Bank; Industrial Bank of Japan; Sumitomo Bank and Tokai Bank all under review. Also reflect on the yen was a 27% annual in Japan's trade surplus in December, reaching its lowest level in nearly 3 years. $/JPY gained nearly 2 yen to 118.44 before pulling back just below 118. The BoJ Governor Hayami said that there was no need to be concern about problems with the financial sector at the end of fiscal year in Japan on March 31. Some analysts' worry that the drop in share prices may hit a few banks hard. Hayami stated that the central bank is making sure that there is adequate funding for companies to meet their need at the end of fiscal year. Talking in front of Upper House audit committee yesterday the BoJ Governor Hayami said that his idea of expanding the measures to increase market liquidity is designed to secure stability of financial markets and to let them function efficiently. The Nikon Keizai Shimbun reported that the ministry of economy, trade and industry will propose a set of measures designed to relax legal prerequisites that could impede organization of small and midsize unlisted firms. The ministries want to allow firms to have one director instead of usual three, to let firms publish their balance sheet on the Internet, and to permit unlisted companies to buy their own shares without convening a shareholder meeting. The first proposal by Ministry is expected on Friday. Orders for Japanese stocks placed through 14 foreign securities houses before Thursday Tokyo session opens showed a net selling stance of seven million shares. There were sell orders for 40 million shares against buy orders for 33 million.

The euro is trading around $0.9235, hitting its lowest level in over 4 weeks. The euro also lost against the yen falling over 1% on the day to trade around 109.82 yen. Market expectations that the euro zone area would outpace the growth of the US helped the single currency rise over 10% against the greenback since November. Over the past 4 weeks, the euro gained only 8 days against the greenback. The currency's failure to show any real rebound towards 95 cents could not be ignored. Fundamentally, the Fed's 50 bp rate cut seemed to have limited pessimism to the US economy, at the expense of the euro. The main reason to the euro's rebound of the past 2 months had been weakness in the US. Now that the Fed has sent clear signals of its resolve to stimulate the economy, markets are once again showing confidence in the US currency. In addition, today's comments from ECB Chief Duisenberg left markets in doubt about interest rates prospects. Duisenberg repeated yesterday's comments from Bundesbank Chief Welteke saying that controlling inflation was the bank's top priority. Duisenberg also made it clear that the Fed, asserting the Bank's ability to contain price pressures as a substantial accomplishment , in no hurry to follow the rate cut the central bank. December inflation slowed to 2.6% from November's 2.9%, making the 2000 average at 2.3%. The ECB Chief Economist Issing said that he expects the US economy to have a soft landing and avoid a recession but stated that there could be some risks to it. Issing added that the launch of the single currency partly protected the region from external developments.




January 24, 4:00 PM: EUR/$..0.9219 $/JPY..117.79 GBP/$..1.4561 $/CHF..1.6596

Euro Hits 1-Month Low, Yen and Sterling Fall by Ashraf Laidi

The euro fell below the key technical support level of 92.50 cents today, hitting its lowest level in over 4 weeks. The latest selling in the single currency stemmed from a combination of technical and fundamental factors. Technically, the euro had repetitively tested and broke 93.50, 93 and 92.50 cents, during a series of weak data releases from the Eurozone. The currency's failure to show any real rebound towards 95 cents could not be ignored. Over the past 4 weeks, the euro had registered only 8 up days against the dollar. Fundamentally, the Fed's 50 bp rate cut seemed to have limited pessimism to the US economy, at the expense of the euro. Recall that the main reason to the euro's rebound of the past 2 months had been weakness in the US. Now that the Fed has sent clear signals of its resolve to stimulate the economy, markets are once again showing confidence in the US currency.

The fact that the euro has retreated back to its session lows at the end of the US session bodes badly for the currency. We could be looking at next key support at 91.65-70 followed by 91 cents. In addition, today's comments from ECB Chief Duisenberg left markets in the dark about interest rates prospects. Duisenberg echoed yesterday's comments from Bundesbank Chief Welteke saying that controlling inflation was the bank's top priority. Duisenberg also made it clear that the young central bank was in no hurry to follow the rate cut by the Fed, asserting the Bank's ability to contain price pressures as a "substantial accomplishment". December inflation slowed to 2.6% from November's 2.9%, making the 2000 average at 2.3%.

The dollar's allure was bolstered further today by reports from Japan's news agency citing that an LDP official stated that White House Economic Adviser Lawrence indicated the US would tolerate a dollar level of 120 yen. $/JPY jumped by more than half a yen to 117.75 within minutes after the comments. Although the White House refuted Jiji's reports, the Japanese currency continued drifting lower after US rating agency S&P placed the rating of 4 Japanese banking stocks under CreditWatch, implying negative prospects for the banks. S&P placed Fuji Bank; Industrial Bank of Japan; Sumitomo Bank and Tokai Bank all under review. Also weighing on the yen was a 27% annual in Japan's trade surplus in December, reaching its lowest level in nearly 3 years. $/JPY gained nearly 2 yen to 118.44 before pulling back just below 118.

Sterling added to the selling already developing in the European session, after the minutes from this month's Bank of England Monetary Policy Committee meeting showed that the 9-member group voted by the slimmest margin to keep interest rates unchanged at 6%. The minimum majority implies that an easing policy bias is gradually engulfing the 9-member Committee, thus making a 25 bp rate cut next month a near certainty. The Bank reasoned that cutting rates following the Fed's surprising move earlier in the month would "send a misleading signal" because the "circumstances in the UK were significantly different from those which had prompted the FOMC to lower" rates. Sterling amounted its decline to a 1.7 cent drop towards $1.4533. Nest support seen at 1.4520 backed by 1.4475.

US stocks did little today ahead of tomorrow's speech from Fed Chairman Greenspan. Dow slipped 2 pts, at 10646 while NASDAQ rose 18 pts to 2859.

Markets are unlikely to heed much attention to tomorrow's release of the Q4 Employment Cost index as the focus will be on Fed Chairman Greenspan's testimony to the Senate 1.5 hrs later. The ECI is expected to have accelerated by 1.1% from 0.9% in Q3,mainly due to the increase in average hourly earnings and wages. A 1.1% q/q rise would lift the y/y figure to an unprecedented 4.5%. A high ECI figure could trigger some losses in US equity futures, but any movements are likely to stabilize ahead of Greenspan's speech at 10:00 AM. Since the speech will be made available to wire services and news agencies before hand, the key points will be immediately released at 10:00 AM, instead of waiting for Greenspan to express them live at the testimony. The timing of tomorrow's speech by Greenspan is less than one week before the FOMC meeting. This is less than the 7-day obligatory "silence" period in which FOMC members are barred from any public statements regarding the policy meeting. The fact that tomorrow's speech is held 8 days before, could lead us to believe that Greenspan will give some clues on next week's meeting.

January 24, 7:00 AM: EUR/$..0.9304 $/JPY..117.95 GBP/$..1.4655 $/CHF..1.6458

$ Stronger, Awaits Rate Cut by Jes Black

No Key Data Today

With the lack of economic data today, markets await Greenspan's speech to the Senate Finance Committee on Thursday, as this is the only time between Thursday and the next FOMC meeting for the chairman to signal to markets whether there will be a 25 bps or 50 bps rate cut. However, sharp movements in the pound and yen marked an otherwise uneventful European session.

First, the BoE released the minutes of their January 11th meeting where they kept rates unchanged for the 11th successive month at 6%. Traders sold sterling when it was announced that rates were left unchanged by a split 5-4 vote, which suggests an easing in the general policy bias and a near term rate cut as early as February. At the meeting, some of the members voted to hold rates steady so that a rate cut was not wrongly interpreted as a reaction to US move. Others cited that RPIX is falling further and needs action to return it to target. The announcement put sterling under pressure as it fell a sharply against dollar, finding support at $1.4615, then bouncing back to the 1.4640s. It is now hovering around 1.4660s and has support around 1.4645.

Today's implied monetary easing bias by the MPC has markets anxious to know why Greenspan held a surprise meeting on January 3rd and slashed rates by 0.5%. Markets may possibly learn the reason why when the Fed Chairman speaks tomorrow. So, it will be very important to listen to Greenspan's comments in order to discern his distress over the slowing economy. The US Treasury yield curve has edged back after pricing in a 90% chance of a 50 bps rate yesterday, it is now around 70%. However, analysts are still divided as to how much the rate cut will be. Many Fed watchers have predicted a 50 bps cut due to the continued decline in the US economy and last week's downside surprise in the Philadelphia Fed survey deep into negative territory. Yet, tomorrow's employment cost index is expected to rise by 1.1%, after last month's fall. Jobless claims are also expected to rebound. Greenspan's comments may shed light onto the overall direction of these trends. In any case, the dollar is stronger across the board this morning. The euro fell to a day's low of 93-cents and Swissy rose to a high of 1.6460 as markets expect a rate cut to boost the US stock markets. Moreover, as investors are beginning to see further signs of a weakening in the eurozone economy, the US may get a possible reprieve from a feared hard landing.

The other major move in currency markets today was the spike in the yen after a Japanese news agency report quoting a Japanese politician as saying Lindsey, Bush's economic advisor, would tolerate a dollar/yen level of 120 yen. The yen suffered quick losses, hitting a high of 117.95, as it tested resistance around 117.90. It continues to hover around the 117.90s. As the yen shed more than 0.5% against the dollar, the euro also edged up 50 pips to a high of 109.95.

Meanwhile, the dollar edges higher across the board and the euro briefly fell below 93-cents. Support is seen at 93.00 followed by 92.80. The Swiss franc followed the euro's move, falling to a day's low at 1.6466.

Europe's bourses are broadly positive today, ahead of an anticipated stronger opening in the US, where positive earnings from Compaq pushed the computer maker up nearly 20 percent in Tuesday's after-hours session. The FTSE pushed past 6300, gaining 1.3% amid a rally in tech and telecoms. DAX was flat. Nasdaq futures are up 37 points following yesterday's 3% gains. Dow futures are up 14 points after edging up 0.7% yesterday.

 

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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