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U.S. Forex Market Commentary

Tue, Jan 13 2009, 22:06 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$ 1.31905 level and was capped around the $1.3370 level.  Federal Reserve Chairman Bernanke spoke today and said the incoming Obama administration’s proposed fiscal stimulus “could provide a significant boost to economic activity.”  Obama yesterday asked the outgoing Bush administration to formally request the second US$ 350 billion tranche of bailout funds under the Troubled Asset Relief Program. Bernanke also indicated the current expansion of the Fed’s balance sheet is not technically quantitative easing and intimated the Fed will continue its various liquidity enhancement schemes.  Traders sold the common currency on increasing speculation that Standard & Poors will downgrade the sovereign credit ratings of Spain and Greece.  Germany formally announced its second fiscal stimulus package with this one valued at €50 billion.  France may provide more than the €26 billion it has already committed to its stimulus program.  Some traders believe the European Central Bank will cut its main interest rate by more than 50bps on Thursday.  ECB President Trichet reported “This is no time for complacency, current challenges are pressing and new challenges shall arise.”  Eurozone data released today saw German wholesale December prices fall 3.3% y/y, the sharpest decline since March 1999. Notably, German consumer price inflation fell in December for a fifth consecutive month to its lowest level in two years.  In U.S. news, the U.S. November trade deficit narrowed to US$ 40.44 billion, its largest contraction in twelve years, while the U.S. deficit with China shrank to its lowest level in five months.  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 ¥89.85 level and was supported around the ¥88.80 level.  Finance minister Nakagawa verbally intervened against the yen, saying “rapid movies are undesirable.”  The lower house of Parliament today passed a supplementary budget valued at ¥4.79 trillion to counter the ongoing recession but the legislation could face a delay in the upper house.  Data released in Japan today saw December outstanding bank lending increase a record 3.7% y/y, an indication that companies are still having difficulty raising funds in the asset-backed commercial paper market.  Other data released in Japan today saw the November current account surplus off 65.9% y/y while the December M3 money supply was up +0.8% y/y.  Standard & Poors affirmed Japan’s sovereign debt ratings overnight.  Other data released in Japan overnight saw December corporate bankruptcies up 24% y/y. The Nikkei 225 stock index lost 4.79% to close at ¥8,413.91.  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 ¥117.70 level and was capped around the ¥119.55 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥129.70 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥79.30 level.  The Chinese yuan strengthened vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8341 in the over-the-counter market, down from CNY 6.8370.  Data released in China overnight saw the country’s foreign reserves rise to US$ 1.95 trillion at the end of 2008 while the 2008 trade surplus printed at US$ 295.46 billion, up from US$ 262.2 billion in 2007.

STERLING

The British pound moved sharply lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4535 level and was capped around the US$ 1.4825 level.  Cable was lower for the third consecutive day as traders reacted to very weak U.K. economic data.  First, BRC reported U.K. retail sales registered their worst record on performance in December, the latest indication that final private demand remains weak.  Second, the government reported November house prices were off 8.6% y/y. Third, November U.K. exports fell 6% despite the recent fall in sterling.  Fourth, RICS December house sales reached a record low and the proportion of unsold houses rose to its highest level since 1992.  Fifth, BCC reported its quarterly survey of nearly 6,000 firms evidenced a “frightening deterioration” in late Q4 business activity.  Most traders expected Bank of England to continue easing monetary policy in Q1.  The Brown government is expected to announce new measures to provide financing assistance to small and medium-sized businesses.  Cable bids are cited around the US$ 1.3920 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9120 level and was supported around the ₤0.8980 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1255 level and was supported around the CHF 1.1135 level.  Swiss National Bank is expected to keep monetary policy easy in 2008.  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 1.4810 level while the British pound lost ground vis-à-vis the Swiss franc as sterling tested bids around the CHF 1.6265 level.

AUSSIE

The Australian dollar came off sharply vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.6665 level and was capped around the $0.6820 figure.  The Q4 NAB business conditions survey and lending data will be released overnight.  Australian dollar bids are cited around the US$ 0.6600 figure.

CAD

The Canadian dollar depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.2315 level and was supported around the C$ 1.2150 level.  Data released in Canada today saw the November trade surplus narrow to C$ 1.28 billion, its lowest level since October 1997, while October’s surplus was downwardly revised to C$ 2.25 billion from C$ 3.78 billion.  U.S. dollar offers are cited around the C$ 1.2400 figure.

Published on  Tue, Jan 13 2009, 22:09 GMT