U.S. Forex Market Commentary

The euro gained ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4885 level and was supported around the $1.4805 level.  On Friday, the common currency established a new lifetime high before paring intraday gains and traders continue to eye the psychologically-important US$ 1.5000 figure.  The pair’s upside moves were limited by news that early U.S. holiday retail sales have been robust this weekend, up 7.2% y/y.  Data released in the U.S. today saw the Chicago Fed’s National Activity Index fall to -0.73 in October, down from -0.30 in September.   Traders await comments from Philadelphia Fed President Plosser tomorrow and U.S. housing market data this week. Most dealers believe the FOMC will ease interest rates further in December and/ or January.  In eurozone news, there is increasing speculation that EMU-13 economic growth may have peaked following comments to that effect from ECB’s Ordonez. Germany’s export association has warned that export growth will halve in 2008 and Germany’s economy ministry is said to be reducing its 2008 GDP forecast.  ECB Vice President Papademos warned there is likely to be a “combination of higher inflation and somewhat slower economic growth in the coming months.”  ECB’s Tumpell-Gugerell sees 2008 GDP growth around 2% and ECB’s Quaden sees monetary policymaking as being data-dependent.  In contrast, ECB’s Stark sees economic growth prospects as remaining “solid” and sees higher inflation risks. ECB’s Bini Smaghi said the ECB has an interest in a “strong euro.” Euro bids are cited around the US$ 1.4575/ 1.4470 levels.

JPN/CNY

The yen weakened marginally vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.75 level and was supported around the ¥108.00 figure.  The yen was given on news that the U.S. holiday shopping season has gotten off to a good start.  The government’s monthly economic report will be released tonight followed by remarks from BoJ Governor Fukui and Deputy Governor Iwata. The Nikkei 225 stock index climbed 1.66% to close at ¥15,135.21.  Dollar bids are cited around the ¥106.55 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥161.45 level and was supported around the ¥160.25 level.  The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥224.80 and ¥98.65 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.3969 in the over-the-counter market, down from CNY 7.4060. Today’s closing low represents the pair’s weakest showing since the yuan’s revaluation of July 2005.  Data released in China today saw October urban fixed-asset investment up 30.7%.  French President Sarkozy is visiting China and announced US$ 30 billion in new trade deals with China.

STERLING

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0720 level and was supported around the $2.0600 figure.  Technically, today’s intraday low was right around the 38.2% retracement of the move from $2.0355 to $2.0760.  Data released in the U.K. today saw Hometrack November house prices off 0.2% m/m with the annual growth rate lower at 3.6% from October’s 4.4% level.  BoE Chief Economist warned the BoE may have to keep interest rates high “for a while” on account of strong global demand for commodities.  Bean also foresees more market volatility in the coming months from the global credit crisis.  Cable bids are cited around the US$ 2.0365 level.  The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the ₤0.7160 level and was capped around the ₤0.7195 level.