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U.S. Forex Market Commentary

Thu, Oct 29 2009, 22:07 GMT
by GCI Financial Team

GCI

EURO

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4860 level and was supported around the $1.4685 level.  A sharp gain in U.S. equities precipitated greater demand for the common currency with more demand for riskier assets. There remains a strong positive correlation between U.S. equity prices and the price of the euro.  Stronger than expected U.S. gross domestic product data cemented the increase for risk as Q3 GDP expanded an annualized 3.5% q/q, a sharp reversal from the previous 0.7% decline and stronger than anticipated.  On a positive note, personal consumption was up 3.4% and the Q3 GDP price index was up 0.8%, below expectations.  Moreover, Q3 core PCE receded to +1.4% from +2.0% in Q2.  Other data released in the U.S. today saw weekly initial jobless claims print at 530,000, down from the prior reading of 531,000, while continuing jobless claims printed at 5.797 million, down from 5.945 million.  Part of the decline in continuing benefits, however, is attributable to an exhaustion in benefits.  October non-farm payrolls data will be released next week and could evidence an improvement in the beleaguered labour sector, or at least a deceleration in job losses.  In eurozone news, the European Commission’s EMU-16 economic sentiment indicator printed at 86.2 in October, up from 82.8 in September.  This suggests the eurozone economy is likely to have expanded in Q3 and through the end of the year.  European Central Bank policymaker Draghi warned global financial market conditons are unlikely to improve to pre-crisis levels anytime soon.  ECB member Quaden warned eurozone inflation will be “very weak” in the coming months and the ECB’s monetary policy decisions will be “very obvious.”   Other data released in the eurozone today saw German October unemployment decline 26,000, taking the unemployment rate lower to 8.1% from 8.2%.  Also, EMU-16 industrial confidence improved to -21 in October from -24 in September.  Euro bids are cited around the US$ 1.4445 level.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥91.60 level and was supported around the ¥90.25 level.  As expected, it’s being reported that Bank of Japan Policy Board members today debated an end to their purchases of corporate debt and other emergency measures.  Data released in Japan overnight saw the September corporate service price index off 0.2% m/m and 3.2% y/y, the latest indication of continuing deflationary pressures in the Japanese economy.  Traders sold yen across the board as demand for riskier assets increased and demand increased for short yen carry trades.  Traders continue to price in no increase in Japanese interest rates.  The December 2009 futures implied rate is currently at 0.51% and the June 2010 futures implied rate is currently trading at 0.485%, an indication the central bank plans to keep borrowing costs unchanged.  Recent media reports suggest the central bank believes deflationary pressures will continue to be a problem through 2011.  The Nikkei 225 stock index lost 1.83% to close at ¥9,891.10.  U.S. dollar offers are cited around the ¥94.75 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥135.95 level and was supported around the ¥132.80 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥151.60 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.95 level. In Chinese news, the U.S. dollar weakened vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8215 in the over-the-counter market, down from CNY 6.8242. People’s Bank of China deputy governor Yi Gang this week said “inflation is not a big risk for the nation in the foreseeable future.”  On Monday, Zhou Hai, a division chief at People’s Bank of China in Harbin, released a report indicating the central bank should sell dollars for euro and yen and diversify its massive foreign reserves portfolio.  While this represented Zhou’s personal opinion and not PBoC policy, it was enough to move the markets earlier this week, especially given the size of China’s massive US$ 2.273 trillion foreign reserve war chest.  There remains widespread speculation the central bank will accelerate the removal of monetary stimuli and liquidity from the system, possibly resulting in further yuan appreciation.

Published on  Thu, Oct 29 2009, 22:09 GMT