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U.S. Forex Market Commentary

Wed, Jul 1 2009, 22:35 GMT
by GCI Financial Team

GCI

EURO

The euro moved sharply higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4200 figure and was supported around the $1.4000 figure.   The common currency reached a three-week high following positive news from China’s manufacturing sector that had traders chasing risk.  The dollar has also been dented by China’s insistence that the International Monetary Fund’s Special Drawing Rights program be expanded at the expense of dollar hegemony.  Chicago Federal Reserve President Evans said Fed policymakers are not currently discussing a timetable for unwinding their massive monetary stimulus, adding the Fed needs to contemplate “how (its) balance sheet will evolve under different scenarios.”  Evans also said the economy was “experiencing more disinflationary headwinds.” Similarly, San Francisco Fed President Yellen was on the tape saying it is “not outside the realm of possibility” that U.S. interest rates will stay near zero per cent for several years.  Data released in the U.S. today saw the June ISM manufacturing activity index improve to 44.8 from 42.8 in May with both the prices and employment sub-indices improving over May’s readings.  Also, May construction spending was off 0.9%, down from April’s revised +0.6% improvement. Moreover, ADP reported June private sector jobs growth registered -473,000 last month, worse-than-expected and an indication that tomorrow’s June non-farm payrolls number could be weaker than forecast. In eurozone news, Germany’s Economy minister Guttenberg reported Germany isn’t in a “widespread credit squeeze” but warned difficulties could emerge in 2010.  The European Central Bank’s €60 billion plan for supporting the covered bond market went live today.  Other data saw EMU-16 June manufacturing output moderate for the fourth consecutive month, rising to 42.6 from 40.7 in May but still below the boom-or-bust 50.0 level.  Also, German May retail sales were up 0.4% m/m.   Euro bids are cited around the US$ 1.3435 level.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥97.00 figure and was supported around the ¥96.15 level.  The pair moved higher following the release of Bank of Japan’s quarterly tankan survey that revealed business confidence among big Japanese manufacturers improved for the first time in 2 ½ years.  The headline diffusion index for large manufacturers climbed to -48 from a record low of -58 in March – the first improvement in the headline diffusion index since December 2006.  These data could indicate the worst is over for the Japanese economy.  Sentiment among large non-manufacturers improved to -29 from a reading of -31 in March.  Despite the release of today’s data, Bank of Japan is unlikely to change its monetary policy anytime soon.  BoJ’s current quantitative easing policies of outright purchases of commercial paper and corporate bonds and payment of interest on banks’ excess reserves currently expire at the end of September.  Finance minister Yosano reiterated Japan’s labour market is the most important concern for officials now. The Nikkei 225 stock index lost 0.19% to close at ¥9,939.93.  U.S. dollar offers are cited around the ¥104.15 level.  The euro strengthened vis-à-vis the yen as the single currency tested offers around the ¥136.90 level and was supported around the ¥135.05 level.  The British pound moved higher vis-à-vis the yen as sterling tested bids around the ¥159.95 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.95 level. In Chinese news, the U.S. dollar moved higher vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8331 in the over-the-counter market, up from CNY 6.8295.  The official June Purchasing Managers’ index improved to 53.2 from 53.1 in May, indicating expansion.

Published on  Wed, Jul 1 2009, 22:36 GMT