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U.S. Forex Market Commentary

Tue, Nov 18 2008, 22:10 GMT
by GCI Financial Team

GCI

EURO

The euro moved marginally lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2570 level and was capped around the $1.2685 level.  Traders are closely watching congressional testimony from Federal Reserve Chairman Bernanke and Treasury Secretary Paulson today.  Paulson recently noted the credit crisis has moved beyond the housing sector and both officials are likely to face extreme pressure regarding an automakers’ bailout or stabilization board.  There will also be grilling related to the Bush administration’s decision to not purchase up to US$ 700 billion in toxic assets pursuant to the Emergency Economic Stabilization Act.  Instead of being appropriated to the Troubled Asset Relief Program, the funds are likely to be injected directly into banks.  Data released in the U.S. today saw October producer prices fall a record 2.8% following September’s 0.4% decline and October PPI was up 5.2%.  Core PPI was up 0.4% m/m and 4.4% y/y.  Other data saw September net capital inflows of US$ 143.4 billion, large enough to cover the US$ 56.47 billion trade deficit that month.  Fed funds futures are fully pricing in a 50bps cut in the federal funds target rate to 1.00% by the Federal Open Market Committee next month.  Data released n the U.S. last year saw October industrial production up 1.3% with October capacity utilization at 76.4%.  In eurozone news, the European Parliament called for the European Central Bank’s rate-setting power to be shifted from the larger Governing Council to the smaller Executive Board, a move that will likely fail because it would require 27 European Union members to ratify changes to the treaty.  ECB member Noyer said there have recently been some signs of improvement in the money markets.  Euro bids are cited around the US$ 1.2135 level.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥97.15 level and was supported around the ¥96.05 levels.  The pair retraced most of the intraday losses incurred in late North American dealing yesterday.  Traders are closely watching the political kabuki in Japan where the opposition Democrats are trying force an early election by delaying key bills designed to assist struggling banks.  Traders are closely monitoring this week’s Bank of Japan Policy Board meeting with most expecting no additional easing at this time after having cut the unsecured call rate by 20bps to 30bps in October. Still, it is possible the central bank may adopt other measures designed to steer money market rates lower. Economy minister Yosano warned the next fiscal year beginning in April could also see negative growth.  The Nikkei 225 stock index lost 2.28% to close at ¥8,328.41.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥122.95 level and was supported around the ¥121.00 figure.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥146.00 figure while the Swiss franc gained ground vis-à-vis the yen and tested offers around the ¥80.95 level.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8284 in the over-the-counter market, up from CNY 6.8269.

STERLING

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5090 level and was supported around the $1.4935 level.  Data released in the U.K. today saw consumer price inflation decline in October at its fastest pace since at least 1997.  CPI growth decelerated to 4.5% y/y from 5.2% y/y in September, representing its lowest level since July and off 0.2% m/m.  Core inflation fell to 1.9% y/y from 2.2% y/y in September.  Short sterling interest rate futures are pricing in additional easing by Bank of England’s Monetary Policy Committee over the coming months.  Chancellor of the Exchequer Darling reported the government will continue to purchasing shares at discounted prices in companies that participate in its recapitalization scheme.  Cable bids are cited around the US$ 1.4315 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8355 level and was capped around the ₤0.8450 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2025 level and was supported around the CHF 1.1970 level.  Data released in Switzerland today saw Swiss retail sales climb 6.4% y/y while October unemployment reached 2.5%.  U.S. dollar offers are cited around the CHF 1.2120 level.  The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5190 and CHF 1.8090 levels, respectively.

Published on  Tue, Nov 18 2008, 22:11 GMT