U.S. Forex Market Commentary

EURO

The euro surged higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4815 level and was supported around the $1.4635 level.  The common currency established a new lifetime high today on reports that Saudi Arabia and the United Arab Emirates are considering de-pegging their currencies from the greenback.  Changes to Middle Eastern exchange rate could potentially have an adverse impact on the U.S. dollar because Middle Eastern countries would likely accumulate more euros and British pounds. Furthermore, these entities control hundreds of billions in petrodollars as a result of elevated energy prices and a shift in exchange rate policies could have a dramatic impact.  ECB member Liebscher hawkishly reiterated concern with the pick-up in eurozone inflation.  Data released today saw Belgium’s November consumer confidence index print at -8 from -1 in October while German PPI was up 0.4% m/m, above expectations.  Eurogroup chief Juncker noted he is “more concerned” about inflation and said officials “deplore sudden changes” in exchange rates.” ECB’s Quaden warned the slowdown could become more pronounced than expected.  In U.S. news, October single-family housing starts were up 3.0% to 1.229 million units and Redbook retail sales were up 0.3% m/m in the first two weeks of November.  Traders await the release of FOMC meeting minutes from the end of October today along with the Fed’s latest economic forecasts.  The December fed funds futures contract is currently discounting about a 59% chance the FOMC will reduce its overnight target rate by 50bps to 4.00% at the 11 December FOMC meeting.  Euro bids are cited around the US$ 1.4575/ 1.4470 levels.

JPN/CNY

The yen weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥110.60 level and was supported around the ¥109.60 level.  Technically, today’s intraday low was right around the 76.4% retracement of the move from ¥109.10 to ¥111.75.  The yen was given today despite a dearth of fresh trading news out of Japan.  Japan’s Tax Commission today recommended an increase in Japan’s consumption tax for the fiscal year to March 2009.  Traders await October trade balance data and the September all-industry activity index overnight.  The Nikkei 225 stock index climbed 1.12% to close at ¥15,211.52.  Dollar bids are cited around the ¥109.75 level.  The euro gained ground vis-à-vis the yen as the single currency tested offers around the ¥163.30 level and was supported around the ¥160.40 level.  The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥228.30 and ¥99.60 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.4218 in the over-the-counter market, down from CNY 7.4286.  China and the European Union will convene a trade summit next week in which the yuan’s exchange rate vis-à-vis the euro will play center stage.

STERLING

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0670 level and was supported around the $2.0455 level.  Technically, today’s intraday high was right around the 38.2% retracement of the move from $1.9870 to $2.1160.  Many data were released in the U.K. today. First, CML October gross mortgage lending was up 6% m/m.  Second, the U.K. October money supply was up 0.1% m/m and 11.8% y/y.  Third, October public sector net borrowing weakened in October, off 1.0 billion.  Fourth, BSA October mortgage approvals fell sharply by a record amount.  CBI’s industrial trends survey was released today and saw the industrial output balance ease to +9 in November from +10 in October, above forecast. Also, the average prices balance increased sharply to +21 in November, the second-joint highest tally since 1995.  Even though this result will provide less pressure on BoE’s MPC to reduce interest rates, most traders believe the repo rate will fall in 2008.  Cable bids are cited around the US$ 2.0365 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7175 level and was supported around the ₤0.7140 level.

SWISS

The Swiss franc appreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1065 level and was capped around the CHF 1.1170 level.  The pair established a new multi-year low as U.S. dollar sentiment crumbled.  Data released in Switzerland today saw the October trade surplus rise 1.1% y/y to CHF 1.558 billion.  Most traders believe SNB will tighten monetary policy next month.  U.S. dollar offers are cited around the CHF 1.1355 level.  The Swiss franc weakened vis-à-vis the U.S. dollar today as the single currency and British pound tested offers around the CHF 1.6430 and CHF 2.2950 levels, respectively. 

AUD/NZD

The Australian dollar gained ground vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8920 level and was supported around the $0.8755 level.  Australian dollar bids are cited around the US$ 0.8535 level. The New Zealand dollar moved higher vis-à-vis the U.S. dollar as the kiwi tested offers around the US$ 0.7635 level and was supported around the $0.7490 level.  New Zealand dollar bids are cited around the US$ 0.7415 level.

CAD

The Canadian dollar weakened marginally vis-à-vis the U.S. dollar today as the greenback tested offers around the US$ 0.9860 level and was supported around the $0.9740 level.  Data released in Canada today saw October consumer prices climb 2.4% y/y with the core index up 1.8% y/y, below September’s 2.0% increase.  The core rate was also lower 0.2% m/m.  U.S. dollar offers are cited around the US$ 0.9960 level.