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& 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.
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ForexNews.com
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