Performance Forex

February 10, 2004

EUR-USD

RESISTANCE

R-3: 1.2870 - minor
R-2: 1.2815 - minor
R-1: 1.2775 - moderate

SUPPORT

S-1: 1.2655 - moderate
S-2: 1.2610 - minor
S-3: 1.2550 - congestion

FORECAST

High: 1.2775
Low: 1.2660

After gapping lower on initial reactions to the weekend G7 meetings, the 12 Nation single currency spent the first half of the day recouping ground from the open with lows of 1.2640 in Australasian markets pushing on to highs of 1.2768 in European morning trade before worries over the Eurogroup meeting surfaced capping further gains for the currency. For much of the day markets listened to and digested officials comments on the G7 meeting with European authorities generally pleased given the inclusion of its key “excessive volatility” phrase. Yet in the end market forces reasserted themselves given the apparent lack of any commitment to actually intervene in the markets or even a clear definition on what excessive volatility might be. At this point we note all this then again puts the Euros upside cap at 1.3000 previously held to be the lower band of the Eurozones 1.3000 and 1.3500 intervention region. Looking further into comments from the region what is clearly apparent to the markets is continued diverging opinions between European monetary and fiscal authorities the former still managing to see some value over a stronger currency with the ECB’s Welteke seeing a strong Euro s of help in keeping the regions policy rates low and the latter more concerned with a stronger currencies effects on international competitiveness. Meanwhile driving markets somewhat yesterday were reports of Asian Central Banking interest as we see continued reallocation by ACB’s to Euro denominated reserves.

GBP-USD

RESISTANCE

R-3: 1.8830 - projection
R-2: 1.8700 - psych
R-1: 1.8635- moderate

SUPPORT

S-1: 1.8515 - minor
S-2: 1.8450 - minor
S-3: 1.8410 - minor

FORECAST

High: 1.8620
Low: 1.8515

Turning out the days biggest winner following the G7 releases over the weekend, the British Pound managed to post close to two big figures of gains over the US dollar shrugging off an open gap to see steady gains coming from lows of 1.8439 in Australasian markets pushing for highs of 1.8635 in Asia-European transition trades. Focus on volatility by the G7 not withstanding market players for the most part took the lack of commitments from the meeting as license to return to previous biases with Cable plays again resurfacing given the combined attractiveness of higher yields for cash assets and strong domestic component to UK growth. At this point recall that the MPC has just recently raised its policy rates with markets still not fully reacting to this given the cautionary effect of the over the weekend G7 meetings. With that now over, expectations now call for further gains in Cable. Still fresh figures for the UK proved to be a cautionary tale as Industrial Production and Manufacturing numbers disappoint with its -0.1% month-on-month performance for January on both releases this against consensus expectations of 0.6% and 0.5% respectively underscoring the seesawing trend in the UK economies main lagger. On the inflation front we also had UK PPI figures with month-on-month Input Prices at -1.0% while Output Prices stood at 0.2% month-on-month with core figures falling far short of consensus expectations at 0.1% year-on-year and the expected 1.6%. Meanwhile in private sector releases we had the British Retail Consortium reporting like-on-like retail sales at 3.8% for its fastest pace in two years this as the UK’s Institute of Directors in turn came out with a statement saying they expect a pickup in business investments this year.

USD-JPY

RESISTANCE

R-3: 107.05 - minor
R-2: 106.85 - moderate
R-1: 106.30 - minor

SUPPORT

S-1: 105.35 - moderate
S-2: 105.00 - psych
S-3: 104.75 - moderate

FORECAST

High: 106.30
Low: 105.45

After interpreting the G7 communiqué as license for Japanese authorities to keep on intervening in the markets, the Japanese Yen at this point started the week on thin market ranges with real money demand for the currency again met with BoJ interest to see USDJPY ranging from highs of 105.95 in European-North American dealing overlap and lows of 105.48 going into European markets. While no names were mentioned in the communiqué what is apparent here this time round was the clear intention of putting pressure on China to allow its currency to strengthen while at the same time ignoring Japanese activities in the market even as the G7 called for more flexibility in the rates of some major economies. At this point we note increasing perceptions in the market that such a statement from the G7 has only fueled interest by speculative types on the current USDJPY situation as the lack of commitment at the same time by the G7 countries in coordinating exchange rate policy translates into Japan again taking the cudgels by itself for supporting the dollars value. This is immediately observable in the latest MoF rhetoric with the Ministry’s Hayashi stating that appropriate action will be taken if currencies see excessive movement. Meanwhile looking at releases for the country we had year-on-year bank loans for Japan remaining at a depressed state of -4.6% from -4.5% along with liquidity up by 1.4% year-on-year though such monetary figures understandably have little impact given the immediacy of flows for the market. Other things of note for Japan was the release of the Economic Watcher Survey by the Cabinet Office with the current economic assessment easing slightly to 48.6 from 0.5 in October.

USD-CHF

RESISTANCE

R-3: 1.2555 - moderate
R-2: 1.2475 - minor
R-1: 1.2405 - minor

SUPPORT

S-1: 1.2290 - minor
S-2: 1.2235 - minor
S-3: 1.2135 - key

FORECAST

High: 1.2400
Low: 1.2290

Following in the wake of the single currency, the Swiss Franc initially opened weaker to the dollar in knee jerk reactions to the G7 communiqué over the weekend only to firm up as markets digest the results then loose ground again on correlations seeing USDCHF start off from highs of 1.2401 in Australasian markets then dropping for lows of 1.2288 in European markets only to recoup half its losses at the end of the day. As one might expect fresh figures from Switzerland were of little note to the market this despite the Unemployment Rates firming slightly to 4.3% for January coming off 4.1%. In the US for its part, fresh figures were supportive of dollar sentiments helping the greenback firm up against the continentals as these compounded with earlier fears of a Eurogroup meeting coming out with a message on currencies overnight in Europe. Here we had December Wholesale Inventories coming in firmer than expected at 0.6% as against an 0.2% consensus from 0.5% previously while Wholesale Sales for its part stood at 1.0% up from 0.6% previously. Meanwhile in officialese we had US Treasury Secretary Snow talking about intervention, that is saying that it should be kept at a minimum with values set by the markets.

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