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U.S. Forex Market Commentary

Tue, Jan 6 2009, 22:07 GMT
by GCI Financial Team

GCI

EURO

The euro moved extended its sharp slide vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3310 level and was capped around the $1.3660 level.  The common currency has now fallen about fourteen big figures in about two weeks’ time.  Today’s move lower followed worse-than-expected European economic data.  First, EMU-15 December services PMI figure fell to 42.1 from 42.5 in November, a new ten-year low and well below the 50.0 “boom-or-bust” level.  Second, the EMU-15 December consumer price index printed at a two-year low of 1.6% from 2.1% in November, below the European Central Bank’s 2.0% ceiling target.  ECB Vice President Papademos said the ECB will now allow the rate to stay too far below 2% for too long and most traders believe the ECB will ease rates by at least 50bps on 15 January.  Third, the PMI employment sub-index fell to 46.2 from a revised 47.3, an indication firms are slashing jobs more aggressively than expected. Fourth, the PMI survey’s price measures declined to their lowest levels since June 2003, the latest indication that inflation is not a major policymaking challenge.  France’s and Germany’s service sectors shrank at their fastest paces in 10% and 11%, respectively, in December.  In U.S. news, November pending home sales were off 4.0%, a deeper decline that expected. Also, November new factory orders were off 4.6%, the fourth consecutive monthly decline, while the December ISM services index printed at 40.6.  Euro bids are cited around the US$ 1.3055 level.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥94.55 level and was supported around the ¥92.85 level.  The yen was mixed across the board, lacking clear trading direction absent any major Japanese economic data. A report surfaced that the government may shy away from balancing its budget by March 2012 to counter the current economic recession and global turmoil.  The Aso government submitted a draft outline to an economic advisory panel today that reprioritizes spending objectives towards economic improvement over fiscal austerity.  Traders are talking about news that Toyota will shut down all Japanese production plans for an extended period of time and similar problems are evident at Honda.  Bank of Japan reported the December monetary base expanded 1.8% y/y.  The Nikkei 225 stock index climbed 0.42% to close at ¥9,080.84.  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 ¥125.15 level and was capped around the ¥127.30 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥138.25 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥83.35 level.  The Chinese yuan weakened vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8360 in the over-the-counter market, up from CNY 6.8312.  People’s Bank of China released a forecast that predicts the Chinese economy will expand 8% in 2009.  The State Administration of Foreign Exchange indicated it will strengthen risk management of the country’s foreign reserves in 2009 after facing a “severe test” in 2008.

STERLING

The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4500 figure and was capped around the US$ 1.4735 level.  Data released in the U.K. today saw the CIPS December services PMI survey climb to 40.2 from 40.1 in November, an indication the sector remains in a severe state of weakness.  Most traders believe Bank of England’s Monetary Policy Committee will reduce rates by at least 50bps on Thursday.  Other data saw Nationwide house prices fall 2.5% in December while the employment sub-index of the PMI services survey fell to a record low of 40.5.  Cable bids are cited around the US$ 1.3920 level.  The euro moved sharply lower vis-à-vis the British pound as the single currency tested bids around the ₤0.9100 figure and was capped around the ₤0.9300 figure.

SWISS

The Swiss franc depreciated sharply vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1280 level and was supported around the CHF 1.1070 level.  The pair reached its highest level since 16 December as traders continued to adjust their portfolios early in the New Year.  U.S. dollar offers are cited around the CHF 1.1330 level.  The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4975 level while the British pound gained ground vis-à-vis the Swiss franc as sterling tested offers around the CHF 1.6540 level.

Published on  Tue, Jan 6 2009, 22:09 GMT