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U.S. Forex Market Commentary

Wed, Jan 28 2009, 23:12 GMT
by GCI Financial Team

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EURO

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3315 level and was supported around the $1.3160 level.  Euro bulls are talking about pushing the common currency to the $1.3475 level.  Traders await today’s Federal Open Market Committee interest rate decision with most expecting the Fed to announce some new measures to ease credit strains.  It is possible but not probable that the FOMC will talk more about paying the long end of the Treasury curve or even shorter maturities.  A more realistic scenario entails the Fed announcing mortgage restructuring initiatives, especially after the Fed submitted a new proposal to Congress to reduce home foreclosures. In eurozone news, provisional January German consumer price inflation for three German states came in less-than-expected, suggesting price pressures continue to abate in the eurozone’s largest economy.  This would offer the European Central Bank additional scope to ease monetary policy with less fear of engendering inflation.  French January consumer confidence improved to -41, its best level since April 2008.  Additionally, German February GfK consumer sentiment was unchanged at 2.2 from January’s revised print of 2.2.  ECB member Gonzalez-Paramo reported “Having been able to anchor inflation expectations gives us room to act in an appropriate way; that is, go in the other direction, in the direction of cutting interest rates, which is what we have done.”  Bank of Spain today predicted EMU-16 inflation would approach 0% by the middle of the year.    Euro bids are cited around the US$ 1.2475 level.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥89.45 level and was supported around the ¥88.90 level.  Prime Minister Aso vowed to create 1.6 million new jobs and rescue Japan from its economic recession. The government yesterday initiated a ¥1.5 trillion plan to purchase shares in companies threatened by the financial crisis. Shoko Chukin Bank’s December business sentiment index for small and medium-sized companies declined for a fifth consecutive month to a record low of 24.8.  Most traders believe Bank of Japan’s Policy Board will continue to attempt to ease credit strains by purchasing corporate assets.  The Nikkei 225 stock index climbed 0.56% to close at ¥8,106.29 today. 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 bids around the ¥118.80 level and was supported around the ¥117.05 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥127.95 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥78.70 level.  The Chinese yuan weakened vis-à-vis the U.S. dollar today as the greenback closed at CNY 6.8402 in the over-the-counter market, up from CNY 6.8392.  People’s Bank of China advisor Fan Gang said GDP growth could fall below 7% annually if the government does not stimulate domestic consumption.

STERLING

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.4345 level and was supported around the $1.4125 level.  A government poll reported U.K. public inflation expectations for the next twelve months edged up to 1.1% in January from December’s record low of 0.8%.  Data released in the U.K. today saw October average earnings up 3.4% y/y.  Most dealers believe Bank of England’s Monetary Policy Committee will continue to drive interest rates lower.  Cable offers are cited around the US$ 1.4615 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.9260 level and was capped around the ₤0.9350 level.

SWISS

The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1440 level and was supported around the CHF 1.1330 level.  Swiss National Bank President Roth today said he does not yet see any “evidence the Swiss economy will recover in 2010.”  Data released in Switzerland today saw the January KOF leading indicator fall to -0.87 from -0.39 in December.  U.S. dollar offers are cited around the CHF 1.1550 level.  The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.5175 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6360 level.

AUSSIE

The Australian dollar appreciated vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.6710 level and was supported around the $0.6610 level.  The Australian government is likely to announce additional fiscal stimulus measures.  Reserve Bank of Australia will convene on 3 February and is expected to reduce its benchmark rate by 75bps to 100bps.  Treasurer Swan reported “While the annual inflation rate remains high, this reflects inflationary pressures from earlier in 2008. Inflation is expected to continue to ease over the next 6-12 months, as the full effect of weaker world economic conditions flows through.” Data released in Australia saw the Q4 consumer price index decline 0.3% while core inflation was up 0.75% and took the annual pace lower to 4.35%.  Additionally, the January skilled vacancies index printed at -7.7%.  Australian dollar bids are cited around the US$ 0.6520 level.

CAD

The Canadian dollar appreciated sharply vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 1.2065 level and was capped around the C$ 1.2305 level.  Finance minister Flaherty said Canada’s economic difficulties require a significant budgetary response.  Prime Minister Harper’s minority Conservative government delivered a budget yesterday that offered a C$ 40 billion two-year stimulus package. The government is predicting a C$ 85 billion budget deficit over five years.  U.S. dollar bids are cited around the C$ 1.1815 level.

Published on  Wed, Jan 28 2009, 23:13 GMT

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