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From the FT this evening:

Trichet concern over rapid rise of euro
By Tony Major in Frankfurt and Ed Crooks in London
Published: January 12 2004 20:51 | Last Updated: January 12 2004 20:51


Jean Claude Trichet, the European Central Bank president, on Monday gave his strongest signal yet of mounting concern in Europe over the rapid rise of the euro, saying "brutal" moves in the dollar were unwelcome for the eurozone.


Stepping up his rhetoric on exchange rates after a meeting of leading central bankers in Basel, Mr Trichet said excessive exchange rate volatility was "not welcome and not appropriate".

He added that Europe's policymakers were concerned, and stressed: "We are certainly not indifferent." His remarks sent the euro, which has traded at record highs on an almost daily basis since the end of last year, sharply lower. It briefly touched $1.29 during the morning.

"Now the markets know they are not pushing at an open door [on the dollar] . . . it's no longer a one-way bet," said Mark Cliffe of ING. "It looks as though we are beginning to see a new phase in the currency war."

Mr Trichet's words were markedly stronger than in his more cautiously expressed first effort to rein in the euro last Thursday. Then he said the ECB did not like excessive volatility - a statement that was seen as insufficiently strong to move the markets.

His latest "verbal intervention" is the first stage in a process that could ultimately lead to the ECB intervening on foreign exchange markets, although it would do so only as a last resort.

If it does intervene, the ECB would prefer a co-ordinated move with the US to increase its effectiveness, as in the effort to support the euro in 2000.

The meeting of the Group of Seven developed countries' finance ministers in Boca Raton, Florida on February 6-7 is expected to address the issue of currencies.

Speaking on Monday morning, Jean-Pierre Raffarin, France's prime minister, became the latest European politician to voice concerns over the appreciation of the euro. "I have to raise my concerns over the current instability in the exchange rate between the dollar and the euro," Mr Raffarin said in his first appearance before the press in the new year.

He said: "We must together, quickly, find the ways to ensure parities that are more compatible with economic reality."

Europe and Japan are expected to press for greater flexibility of Asian currencies in an attempt to ease pressure on the euro-dollar exchange rate.

Any effort to persuade the US to try to stop the dollar's decline is likely to be fruitless. Most analysts believe the Bush administration favours a lower dollar to help domestic exporters and narrow the national trade deficit.

Mr Trichet said there was "a mention" of excessive exchange-rate volatility by Europe in the course of Monday's central bankers' meeting, but it was not discussed as a risk to world growth.

If the euro surges above $1.30, and threatens to snuff out the eurozone's flickering upturn, the ECB will come under heavy pressure to cut interest rates.

Additional reporting by Robert Graham in Paris

Well, M. Trichet's comments knocked back not just the Euro, but also the pound which drew back 125 points from the peak. Really screwed up my trading today.

Now waiting to see if the market takes more than transitory notice of this and whether the trend will continue over the next few days.

Can anyone recommend a good real-time news feed for currency info?

Thanks for your contribution dc ..... I was beginning to wonder if I might be talking to myself.

There are some news links in the header plus you need, imo, AFX headline news which a few people are hoping will appear on am soon (hint, hint Mike).

As for strategy, I personally feel that you should currently be short the EUR/USD from yesterday (see post 71) following the break of the rising support line. As I type, the market looks to be forming a fresh high which will enable you to draw a resistance line between this current high and the high of yesterday on the 5 minute chart. I'm avoiding the Yen which currently looks a bit rangebound because of the risk of BoJ intervention.

Hmm, I'm very wary of going long on the dollar either with the euro or the pound. I've been tracking the trend on the pound and there still seems to be some very bearish sentiment on the dollar with little in the fundamentals to suggest a change in the trend. Certainly Trichet's comments will cause a pause but unless the ECB actually start intervening I think the market will continue to hammer the dollar.

For the moment I'm keeping a small long on the pound with a tight stop to see if the trend re-establishes itself.

Agree on the Yen. Been keeping an eye on it and the BoJ seem to be holding it firm. If they ever change their policy, or run out of money to support it, though then it might break very hard.

BTW, I'm using deal4Free spreadbet for these trades.

dc,

To avoid confusion in my earlier post, I'm still a greenback bear but I'm trading the 5 minute chart rather than the daily chart.

It's all a matter of timescale, isn't it :-) I think if the pound drops through the 1.8420 support it could tumble quite far today, but it's a hard call to make and I gave quite enough money to this trade yesterday so I'm probably going to stand aside today and see how it unfolds.

Hmm, the euro seems to be holding stronger than the pound this morning.

re realtime news try fxcm via the real / demo trading client

Ok, thanks. I downloaded the demo client the other day. Will try it out.

An excellent real time feed plus charts and analysis for free try Saxobank. Just register and download their demo. Very handy!

telco's gaining on sector +ve upgrade

Morning all.
Not trading equities much, but have taken a few longs
on cable (/$) these past few days, with mixed results.
The whole world says we are going to 190 or higher,
and that frightens me a little.
This mornings ind figs far worse than expected, and i was
long from early this morning @184.42. Pre figures went up to
184 90ish, then declined back to 184 26. managed to get out
@184.62 for a small profit, but the BIG question now is;
These figures, and the reported drop in house prices lessen
the likelihood of interest rates going up next month.
So which way now ? Gut feeling tells me we are coming back to 183.50ish,
but what do i know. dyor. nag., and thanks Hilary for a great thread

Out of the FX markets since earlier this morning. Not really comfortable and no clear trend showing, so I'll sit on my hands till I get some clearer sense of direction.

Alan Greenspan speech at 16.00 gmt -so will see what he says and that should give direction to the fx trades as they are stagnant at present.Best to be careful and safe to stay out until he has opened his mouth as the fx can give max.PAIN.

rgds
zarif

hilary - wise move. I got bitten today trying to get something out of the pound and euro.

There's talk of intervention by ECB. Even if it doesn't happen it is making the market jittery.

EUR/USD operated in a 70 point range throughout yesterday. It looks to have broken through the bottom of that range this morning.

There's a nice resistance line connecting the 05:00 12/1 candlestick and the 19:00 13/1 candlestick on the 5 minute chart which should act as a nice stop for shorts.

Morning all viewers,
long Eur/US$ @ 126.69, with a 30 point stop
think chances of intervention at this level are just talk,
trichet is bluffing. maybe when they really feel some pain,
say 130-135. his words had the desired effect though.
see cable coming back - will it stop at c183.50. should do.

Oh well Beeble. At least one of us will be right.

:o)

the lady certainly has it, so far anyway....
hope you traded it gal
deuce now

Beeble,

If you showed your legs, you might get the dollar down.

:o)

LONDON (AFX) - The euro has fallen over half a US cent against the dollar in early London trading, after a senior European Central Bank official warned of the risks of volatile currency moves, analysts said.

ECB governing council member and Bank of France governor Christian Noyer said earlier in a televised interview that 'brutal changes and excess volatility in the major currencies are not good for global economic growth'.

These remarks echoed ECB president Jean-Claude Trichet's comments on Tuesday, which prompted traders to take the euro down from record highs.

'Noyer's comments at the least indicate that the ECB is getting more concerned than last Thursday's comments from Trichet suggested,' said Michael Klawitter, currency strategist at WestLB.

Trichet last week said the acceleration in global growth would be a counterweight to the negative impact on European exports from an appreciating currency. These comments saw the euro rise almost two US cents, above 1.27 usd.

With this week's comments from Trichet and Noyer, analysts said the ECB has made clear it shares the concerns of many European political leaders about the trend in the euro.

'The fact that European central bankers have now joined politicians in regularly commenting on euro appreciation has served to at least moderate the gradient of the dollar's decline,' said Steve Pearson, strategist at HBOS Treasury services.

In any case, the market was probably ripe for some profit taking, Klawitter said, given the rise the euro has enjoyed in recent weeks.

'One should not be overly surprised by this move. We have seen a spectacular rally in euro/dollar,' he said.

'Currencies never move in a straight line' indefinitely, he noted. When it hit its most recent record high just below 1.29 usd Tuesday, the euro had risen 5 pct against the dollar in the space of a month.

Traders will closely watch the 1.30 pm US November trade deficit figures, analysts noted, with some improvement expected to further help the dollar today.

If the deficit narrows more than expected, the euro could fall below 1.26 usd, said Nick Parsons, strategist at Commerzbank.

Klawitter said the euro could fall as low as 1.2550 this week.

Another factor behind the dollar's recovery could be traders getting out of some short positions ahead of US corporate earnings announcements for the fourth quarter, Klawitter also said.

As expectations are that US firms will report positive profit growth, traders may want to scale back on their dollar-short positions, particularly given that the market as a whole is 'so strongly weighted to one side,' against the dollar, he said.

Recent weekly speculative positioning data from the US Commodities Futures Trading Commission have shown euro/dollar long positions at historically high levels, analysts note.

Sterling, meanwhile, has also dropped against the dollar this morning, as the dollar rose against most major currencies.

The UK reported earlier that the December employment report showed that unemployment rolls fell by 8,300. The unemployment rate, as measured according to an international standard, fell to 4.9 pct over the three months through November.



London 9.45 am Singapore 2.30 pm

Dollar

yen 106.29 up from 106.20

sfr 1.2332 up from 1.2246

Euro

usd 1.2668 down from 1.2734

stg 0.6897 up from 0.6896

yen 134.67 down from 135.21

sfr 1.5622 up from 1.5593

Sterling

usd 1.8368 down from 1.8455

yen 195.24 down from 195.95

sfr 2.2654 up from 2.2592

Australian dollar

usd 0.7759 down from 0.7771

stg 0.4224 up from 0.4209

yen 82.47 down from 82.520