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U.S. Forex Market Commentary

Sun, Nov 30 2008, 22:07 GMT
by GCI Financial Team

GCI

EURO

The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2700 figure and was capped around $1.2955 level.  The common currency came off after data revealed the eurozone economy shrank q/q in Q2, the first decline since 1995.  November EMU-15 inflation printed at an annualized 2.1%, down from 3.2% in October, while October unemployment printed at 7.7%.  Many traders expect the European Central Bank will implement at least a 50bps interest rate cut next week to counter the sharply slowing eurozone economy.  The eurozone inflation fell so sharply that many economists believe deflation could emerge in the eurozone next year.  The Italian government announced a €5 billion fiscal stimulus program to improve the slowing economy.  Overnight deposits held at the European Central Bank printed at €204.998 billion as of yesterday, down from the record high of €297.424 billion from earlier in the month.  Additionally, banks borrowed €5.959 billion from the ECB’s overnight loan facility, up from the previous €2.229 billion amount.  In U.S. news, traders continue to monitor the Federal Reserve’s multiple liquidity provision facilities and possible bailout for the ailing U.S. automobile industry.  Euro bids are cited around the US$ 1.2135 level.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥95.60 level and was supported around the ¥95.10 level.  Many data were released in Japan overnight. First, October retail sales were off 0.6% y/y, underscoring the weak nature of final private demand.  Second, October industrial output was off 3.1% m/m.  Third, core annual inflation fell to 1.9% on October while Tokyo-area November annual inflation fell more-than-expected to 1.1%.  These data will prolong the debate as to whether or not Bank of Japan’s Policy Board should reduce official interest rates further to counter economic weakness.  Fourth, the October jobless rate fell to 3.7%, a one-year low.  Fifth, October overall household spending fell 3.8% y/y.  Sixth, private sector October construction orders were up 5.0% m/m.  Seventh, overall housing starts were up 19.8% y/y in October.  Bank of Japan Governor Shirakawa will speak on 22 December.  Prime Minister Aso and his Democratic Party opponent clashed in Parliament today about when to call the next general election.  The overnight call rate rose above the BoJ’s 0.3% target rate overnight and the BoJ supplied same-day funding for the first time in one month.  The Nikkei 225 stock index climbed 1.66% to close at ¥8,512.27.  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 ¥121.15 level and was capped around the ¥123.45 level.  The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested offers around the ¥145.55 and ¥78.45 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar today as the greenback closed at CNY 6.8349 in the over-the-counter market, up from CNY 6.8280.  The government announced it will enact additional fiscal stimuli to boost domestic demand and counter the slowing economy.

STERLING

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5255 level and was capped around the $1.5445 level.  Data released in the U.K. today saw CBI November retail sales index fall sharply to -46 from -27 in October, the lowest reading since August which was the lowest reading since 1983.  Also, Land Registry house prices fell 10.1% y/y in October, underscoring the weakened state of the U.K. housing market.  Additionally, YouGov public inflation expectations for the next twelve months fell to a series low of 0.9% in November from 2.9% in October.  The decline in inflation expectations will afford Bank of England’s Monetary Policy Committee more room to reduce interest rates.  Many dealers believe the MPC will cut rates by at least 50bps next week with some calling for as much as 100bps of monetary easing.  Cable bids are cited around the US$ 1.4315 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8290 level and was capped around the ₤0.8400 figure.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2170 level and was supported around the CHF 1.1960 level.  Data released in Switzerland today aw the November KOF leading growth barometer fall to -0.05 from a downwardly revised +0.28 in October, its lowest level in more than five years.  Q3 GDP growth data will be released on Thursday and Swiss National Bank is likely to reduce interest rates further on 11 December.  U.S. dollar offers are cited around the CHF 1.2350 level.  The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.5435 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.8625 level.

AUD

The Australian moved lower vis-à-vis the U.S. dollar today as the Australian dollar tested bids around the US$ 0.6490 level and was capped around the ₤0.6595 level.  Data released in Australia overnight saw October private-sector credit growth of +0.6% m/m.  Australian dollar bids are cited around the US$ 0.6965 level.

CAD

The Canadian dollar weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.2455 level and was supported around the C$ 1.2305 level.  Data released in Canada today saw the Q3 current account surplus narrow to C$ 5.64 billion from C$ 8.21 billion in Q2.  Also, October industrial prices were unchanged m/m and raw materials prices fell 12.5%.  Canada’s economy fell into recession in Q4.  U.S. dollar offers are cited around the C$ 1.2615 level.

Published on  Sun, Nov 30 2008, 22:10 GMT