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U.S. Forex Market Commentary

Tue, Jul 7 2009, 22:06 GMT
by GCI Financial Team

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EURO

The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3905 level and was capped around the $1.4050 level.  Higher-yielding currencies such as the common currency came off ahead of the U.S. earnings season on growing speculation second quarter corporate earnings will fall short of expectations.  The pair could not sustain some gains made after it was reported German May factory orders were up 4.4% m/m, an indication that manufacturing expanded the most in nearly two years, but were off 29.4% y/y.  All eyes are on Italy tomorrow as Group of Eight officials and other countries’ leaders will convene to discuss the global economic situation.  There is lingering chatter that China, Russia, India, and some other countries may carry forward an agenda that would seek to promote a new international reserve currency, a move that invariably could weaken the U.S. dollar’s long-standing hegemony.  Kremlin economic adviser Dvorkovich said Russia isn’t trying to weaken the U.S. dollar but said the growth of other reserve currencies will help to expanded the global financial system.   ECB memver Weber said there is “no need” to lend directly to companies because Germany is “currently not in a credit crunch,” a contrast to finance minister Steinbrueck who wants Bundesbank to do more to stimulate business growth.  ECB member Ordonez said the central bank is not planning any extraordinary measures to improve the eurozone economy but reiterated policymakers “need to avoid deflation.”  Ecofin finance ministers convened last night and reported fiscal stimulus spending must be maintained until there are clear signs of economic improvement.  Euro bids are cited around the US$ 1.3435 level.

JPY / CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥94.70 level and was capped around the ¥95.45 level.  The yen extended recent gains on increasing speculation that U.S. corporate earnings will decline and prompt Japanese investors to reduce exposure to U.S. equities and the U.S. dollar.  Technicians continue to note a strong correlation between U.S. dollar/ yen and the three-month U.S. Libor/ three-month Japanese yen Libor spread and some believe the dollar’s downside has more room to run.  Traders continue to put on the risk aversion trade and the yen remains a principal beneficiary of that strategy.  Some dealers believe the verbal intervention from Japanese monetary authorities will increase as the pair inches closer to the psychologically-important ¥90 figure.  Nikkei reported Bank of Japan is considering an extension of its credit easing facilities, possibly as early as next month.  Some programs expire at the end of September and policymakers may want to avoid speculation about their exit strategy.  Finance minister Yosano reported the worst is over for the Japanese, European, and U.S. economies.  The Nikkei 225 stock index lost 0.34% to close at ¥9,647.79.    U.S. dollar offers are cited around the ¥104.15 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥131.80 level and was capped around the ¥133.90 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥152.70 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.90 level. In Chinese news, the U.S. dollar moved lower vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8318 in the over-the-counter market, down from CNY 6.8334. 

Published on  Tue, Jul 7 2009, 22:14 GMT

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