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News
& Analysis:
January 10, 2:00 AM: EUR/$..0.9414 $/JPY..116.68
GBP/$..1.4922 $/CHF..1.6180
Euro and Yen Steady from Slide vs. Dollar by Jes Black
At 7:00 AM weekly mortgage applications (exp n/a, prev 219.9) 10:00 AM US
November Wholesale Trade (exp 0.7%, prev 0.3%)
The euro and yen steadied against the dollar this morning in European
trade. However, the euro is struggling to stay above the 94-cent level,
while the dollar/yen is firm at around 116.60. Meanwhile, sterling edged
higher against the dollar after the euro/sterling cross fell from a day's
high of 63.47 pence to 62.98. Cable rose to a day's high of 1.4932, above
yesterday's US close at 1.4895, but gains are seen limited amid wariness
ahead of the BoE interest rate meeting on Thursday. Resistance is seen at
around 1.4940 followed by 1.50. Swissy tracked the euro/dollar's move and
rose to a high of 1.6210 before consolidating slightly below the 1.62
level.
The single currency finally recovered from two days of profit-taking which
sent the euro/dollar to a global low of $0.9386 on Tuesday. After Friday's
6-month high of $0.9595, dealers began to lock in profits by unwinding
long euro positions accumulated over the single currency's steep two-month
rally of more than 14%. Analysts say that the single currency was also
sold on frustration that it failed to break above the level of $0.9600,
which it hasn't reached since June 20, 1999. Despite the recent
consolidation, underlying sentiment still favors the eurozone where the
economic downturn is expected to be less pronounced. Dealers say the
market will move sideways until Friday, when key US retail sales and
producer price data are expected to give clues to the health of the US
economy and the timing of further rate cuts by the Fed. Dealers expect the
euro to bounce back if retail sales report the expected drop of -0.6%.
In spite of the euro/dollar consolidation at around 94-cents, the euro/yen
is hovering in the 109.50s, noticeably lower than yesterday's US close of
110.34. Nevertheless, the yen is likely to continue to suffer as Japan is
mired in the vicious circle of falling stock prices and an economic
slowdown. Overnight gains in the Nasdaq didn't help the Nikkei as the
index ended down 177 points today, or 1.3% to close at 13432, its lowest
level in nearly two years. This came after yesterday's loss of 1.85%.
Iinvestors, both at home and overseas, are especially hesitant to enter
the Tokyo market at this moment as the gloomy outlook in the Japanese
economy persists. Moreover, the yen is likely to see a further
deterioration after last week's comments from Financial Minister Miyazawa
said a weak yen is good for Japanese exports.
Markets will also look to tomorrow's preliminary release of Germany's
official estimate of 2000 GDP. It is expected to jump by 3.1% from sub
2.0% growth the past three years. Tomorrow's data will also provide
economists with a clue about how much the eurozone grew in the fourth
quarter of last year. It is expected to have increased by 1.5%. In
comparison, the US economy has slowed from near 6% in Q2 to 2.2% in the
Q3, the weakest quarter since 1996. The final revision was twenty basis
points downward due to a further deterioration in the trade balance.
In other news, both German exports and imports slowed following
exaggerated strength in the past months. However, Germany's trade surplus
eroded as imports grew more than twice as much as imports did in November.
The current account deteriorated to 6.2 billion DM from 2.6 bln in
October. This is attributed to higher oil prices, which have been boosting
imports, but the deterioration is set to slow as oil prices ease.
With little other economic data expected until Friday, the market's focus
will be on profits. However, sentiment has moved markedly from joy to
depression in recent weeks, as profit worries have caught hold of
investors' attention again. Despite the Fed's surprise rate cut last week,
investors have already priced in another cut from at the end of the month.
European bourses are lower as Nokia declined another 4% dragging
technology stocks with it. US stocks are also seen opening lower. Dow
futures are down 60 points, while the Nasdaq is down 39.00.
January 10, 2:00 AM:
EUR/$..0.9443 $/JPY..116.21 GBP/$..1.4892 $/CHF..1.6128
European Trading Preview by Jes Black
At 2:00 AM German Trade balance (exp 6.1 bln DM, prev 5.0 bln DM)
The yen roared back against the dollar as damaging rumors had been cleared
up and dealers stopped selling yen so aggressively. Buzz of losses by
Japanese life-insurance companies, and the lack of economic data during
the day sent the yen to a fresh 17-month low of 117.14, then tumbled back
to earth. However, the dollar's sudden fall sent dealers scrambling to
lock in profits after the dollar/yen fell below 116 yen. The dollar/yen
posted a day's low of 115.84 before climbing back to the 116.30s where it
remains.
The single currency has also recovered from profit-taking which sent the
euro/dollar to a global low of $0.9386 yesterday. Since Friday's 6-month
high of $0.9595, dealers began to lock in some profits and unwound long
euro positions accumulated over the single currency's steep two-month
rally of more than 14%. Analysts say that the single currency was also
sold on frustration that it failed for a third time in two days to break
above physiological level of $0.9600, which it hasn't reached since June
20, 1999. The euro/yen also recovered from profit-taking which sent it to
a low of 108.70 on Tuesday. It is now hovering around 110.10, aided by
another fall in the Nikkei. Dealers say the yen will likely continue to
suffer as market players doubt if Japan can break the vicious circle of
falling stock prices and an economic slowdown. Despite overnight gains in
the Nasdaq, the Nikkei ended down 177 points, or 1.3% to close at 13432,
its lowest level in nearly two years. This came after yesterday's loss of
1.85% as investors, both at home and overseas, are widely seen hesitant to
enter the Tokyo market as the gloomy outlook in the Japanese economy
persists. Whether the yen will start to recover as the selling in Japanese
stocks prompts Japanese investors to repatriate their funds ahead of the
annual book closing in March is also unclear. Moreover, the yen is likely
to see a further deterioration after last week's comments from Financial
Minister Miyazawa said a weak yen is good for Japanese exports.
Failing to rebound against the dollar was sterling which is languishing
around support at $1.4885. Cable's fall is due to the climb in EUR/GBP
which rose to a day's high of 63.47 pence. Meanwhile, The Swiss National
Bank said yesterday that it expected its currency would appreciate against
the dollar in the next few quarters.
Euro activity will center around tomorrow's preliminary release of
Germany's official estimate of 2000 GDP expected at 3.1% from 1.4% in
1999, providing economists with a clue on Q4 GDP. In other news, both
German exports and imports slowed following exaggerated strength in the
past months. However, Germany's trade surplus eroded as imports grew more
than twice as much as imports did in November. The current account
deteriorated to 6.2 billion DM from 2.6 bln in October. This is attributed
to higher oil prices, which have been boosting imports, but the
deterioration is set to slow as oil prices ease.
Finally, Euro-stocks are set to bounce after yesterday's Nokia-led
nosedive. European shares closed mostly lower Tuesday, pressured by losses
in technology shares after Nokia reported disappointing sales figures. But
the markets improved from the day's lows after Wall Street's higher
opening somewhat cheered European investors. The major US stock indexes
diverged, with the Dow falling 48 pts to 10572 and the NASDAQ gaining 45
pts to 2441.
January 9, 7:00 PM:
EUR/$..0.9434 $/JPY..117.05 GBP/$..1.4880 $/CHF..1.6132
Daily Open Japanese Trading Preview by Darko Pavlovic
No data coming from Japan today.
The dollar rises to 17-month highs of 117 yen in early Tokyo trading, its
highest since July 1999. November household spending fell 1.5% after
dropping 0.5% in October further undermining the yen. Nikkei closed down
1.85%, near a two year lows. Many analysts say that the slowdown in the US
is contributing to the fall of Japan's export driven economy. The BoJ is
getting increasingly concern about the economic outlook overseas. An
official at the central bank said that falling stock prices in Japan have
not hurt consumer spending, business sentiment or other elements of
domestic demand. But although the BoJ remains relatively optimistic about
the outlook for domestic economy the economic prospects of possible
recession in the US and Asia distress the bank's officials. Next
resistance level is seen at 117.20 followed by 117.45-50. The fact that
the euro is off its 10- month highs vs. the yen, trading around 110.47,
way off its 111.92 highs reflects the dollar strength. Japan's MOF Kuroda
said in an interview with the Nikkei that the ASEM meeting will discuss
regional financial co-operation, which would include the possibility of a
creation of Asian currency swap agreement and reform of the currency
system. Asian co-operation to reform the regional financial system would
be a positive development, which could contribute to stability of the yen
in the long run.
The dollar strengthens against the euro and reached 17-months highs vs.
the yen, on expectations the Fed will further cut interest rates and avoid
recession this year. The single currency reached last week highs of
$0.9595 against the dollar to dropped to $0.9383 in today's New York
trading, a decline over two cents in two days. It slightly rebounds to
$0.9437 as many analysts justified the slide, due to profit taking after
six weeks of the euro's powerful gains. While many analysts lowered their
forecasts for the US economic growth this year, some expect that Fed will
further cut interest rates to stimulate growth and prevent the economy
from hard lending. In a surprise move last week the Fed cut interest rates
by 50 bps to 6%. Yesterday, Atlanta Fed President Guynn said the expects
the US economy to slow to at 3% growth rate this year before rising again
and was favoring further interest rate cuts.
Central bank Governors from the Group 10 nations in a yesterday's meeting
in Basel, Switzerland said the US is likely to avoid recession although
the growth slowed. Many analysts expect further rate cut of 50 bps at next
Fed's meeting on January 30-31. By the end of this year the interest rates
could decrease by 125 bps to 4.25%. The next big test for the US economy
as well as the dollar is data due on Friday. The US December retail sales
probably fell 0.2% after a 0.4% drop in November, which should further
boost the expectations of a rate cut.
January 9, 4:00 PM:
EUR/$..0.9445 $/JPY..116.75 GBP/$..1.4890 $/CHF..1.6126
Euro Creeps Up, As Yen Backs Down by Ashraf Laidi
European currencies eased their consolidation phase towards late European
trading as the euro bounced off its 93.80s cents support and into the
94.40s. In the absence of key economic data, FX players have exploited the
euro's rise to multi-month highs and are now gearing up for another
potential run-up in the currency as slowing US fundamentals remain the
order of the market. German Dec unemployment fell to a fresh 5-year low in
December to 3.77 mln, pushing the jobless rate to 9.2%. The euro's
intraday comeback was also seen against the yen and the pound, with EUR/JPY
rebounding nearly 2 yen to 110.34 yen and EUR/GBP bouncing back by half a
penny to 63.4 pence.
Euro activity will center around tomorrow's preliminary release of
Germany's official estimate of 2000 GDP expected at 3.1% from 1.4% in
1999, providing economists with a clue on Q4 GDP.
The rally in EUR/JPY once again fuelled $/JPY to fresh 16-month highs at
116.85 as the Japanese gloomy picture was once again highlighted by the
euro's recovery.Whether the yen will start to recover as the selling in
Japanese stocks prompts Japanese investors to repatriate their funds ahead
of the annual book closing in March is unclear. Over the past few years,
we've found no correlation between yen strength and buying activity ahead
of the end of the fiscal year in March 31s. Instead, the most obvious
correlation is between the yen and the Nikkei, both of which declined in
concert. The Nikkei lost 30% of its value since the sell-off since last
April, and the yen has follows suit, partly due to the capital outflows
from the falling assets and the deteriorating economy. It is argued that
the repatriation factor will take hold this time because Japanese
investors, especially those owning foreign bonds, will gain from the
capital gains (from falling interest rates) and from currency gains
(falling yen vs foreign FX).
Sterling did not show its usual tracking of the euro, remaining adrift
below the 1.4890s and nearing the 200-day moving average of 1.4850.
Sterling activity will be underpinned by Thursday's Bank of England
decision expected to produce no change in rates and Friday's scheduled
release of November industrial production expected up 0.7% from the
previous -0.2%.
The Swiss National Bank said today it expected its currency it "may
especially post gains against the dollar in the next few quarters"
using its assessment for a slowdown in US and European growth rates as the
reason. The Bank said it saw no risk of inflation compared to its last
assessment in June. Although M3 (money supply) rose by 0.2% in Q3
following consecutive declines in the Q4 99-Q 00 period, the Bank said the
rise did not reflect any increase in inflation, which it expects to
average 2.1% in 200. The Bank's current target for short-term interest
rates is the LIBOR range of 2.0-4.0%. The SNB said it expected to keep its
target rate unchanged for at least the next few months. 2001 GDP growth is
seen at 2.2% and 1.6% in 2002 compared to 3.2% in 2000.
The major US stock indexes went into their separate ways, with the Dow
falling 48 pts to 10572 and the NASDAQ gaining 45 pts to 2441. While most
Wall Street economists expect the Fed to cut rates by an additional
100-150 bps this year, 2 regional Federal Reserve Bank Chiefs yesterday
argued against a recession, indicating that growth was disappointing
(Atlanta's Jack Guynn) and (Dallas Robert McTeer) doubting that Q4 growth
had turned negative We have seen how the Fed used to act preemptively
against inflation by raising rates when inflation was still contained.
Today, is the opposite. The Fed is acting aggressively in order to tackle
the existing economic slowdown as well as to counter further future
declines in manufacturing and consumer confidence.
The single currency could gain further ground this Friday when US retail
sales are released, expected to show a 0.1-0.3% drop in December after the
0.4% drop which shook off the dollar last month. The data will reinforce
the deteriorating picture of falling consumer confidence, which has been
amid the chief causes behind the rise in the euro.
Market sentiment still favors the euro despite the currency's 2-day drop
vs the dollar. Technical currents are still in favor of the currency after
it surpassed the key technical level of 95.50 cents (38% retracement of
the drop from the $1.17 high to the 82.2 cent low). The recent
backtracking is seen as a healthy sign, gaining steam before the next
run-up. When a currency rallies unsustainably, it starts carrying the
burden that it may be overbought. This decline is seen by many as a
healthy consolidation that will give the currency buying potential to
carry it towards the key 97-cent level, after which parity becomes an even
more realistic target by the summer.
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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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