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U.S. Forex Market Commentary

Thu, Aug 6 2009, 22:45 GMT
by GCI Financial Team

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EURO

The euro lost ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4330 level and was capped around the $1.4430 level.  Traders are focusing on several key factors. First, the all-important July non-farm payrolls report will be released in the morning and most forecasts are calling for job losses of 275,000 to 325,000 in what would be a moderation of weakness in the labour market.  Second, Council of Economic Adveriser Chairwoman Romer noted the federal stimulus package has helped stabilize the U.S. economy buit added a full recovery is still a “tremendous distance” away.  Third, the Federal Reserve continues to gradually unwind its massive monetary stimulus program.  Assets on the Fed’s balance sheet decline for the third straight week and now stand at US$ 1.99 trillion.  The Fed has more than doubled its total assets over the past year to help thaw credit markets and provide sufficient liquidity. Fourth, U.S. economic data continues to be a mixed bag.  Data released today saw weekly initial jobless claims fall 38,000 to 550,000 while continuing claims increased 69,000 to 6.31 million.  In eurozone news, the European Central Bank kept its main refinancing rate unchanged at a historic low of 1.0%, as expected.  ECB President Trichet reported further monetary stimulus is not likely, noting current interest rate policy is “appropriate”  and policymakers are “satisfied” with their asset purchase program and policies to improve the flow of credit.  Data released in the eurozone today saw German June manufacturing orders climb 4.5% m/m, exceeding forecasts, but were off 25.3% y/y.  Euro bids are cited around the US$ 1.3900 figure.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥95.80 level and was supported around the ¥94.75 level.  Traders are talking about a story suggesting Bank of Japan will likely forecast deflation through March 2010 on account of weak domestic demand.  Currently, the central bank is estimating the core consumer price index will fall 1.3% in the year to March 2010 and another 1.0% the following fiscal year.  The BoJ will issue its first price forecast for the year to March 2010 on 30 October.  Dealers expect the BoJ will keep its assessment of the economy unchanged when its Policy Board convenes next week.  BoJ Governor Shirakawa is likely to reiterate the likelihood of the economy entering a deflationary spiral is low.  Shirakawa will attend a conference from tomorrow in China sponsored by People’s Bank of China and Bank for International Settlements.  Data released in Japan today saw the June leading index improve to 70.0 on a diffusion basis and 79.8 on a composite basis.  The Nikkei 225 stock index climbed 1.32% to close at ¥10,388.09.  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 ¥137.95 level and was supported around the ¥136.60 level.  The British pound moved lower 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 ¥90.20 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8283 in the over-the-counter market, up from CNY 6.8279.  Traders expressed caution over a suspected bank fraud involving a major Chinese financial institution.  A Chinese government think tank is predicting GDP will likely expand 8% with the trade surplus around US$ 220 billion this year.

STERLING

The British pound lost significant ground vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6750 level and was capped around the $1.7030 level.  Sterling fell sharply after Bank of England unexpectedly increased its quantitative easing program by ₤50 billion, an indication the central bank remains concerned about the economic outlook.  Recent U.K. economic data have evidenced improvement and led to speculation the BoE would suspend or reduce its bond purchase programs.  GDP fell 0.8% q/q and 5.6% y/y, the largest annual decline since at least 1955.  RICS reported it expects house prices to rise slightly this year, an improvement from the previous 10% decline.  Cable bids are cited around the US$ 1.6485 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8560 level and was supported around the ₤0.8455 level.

Published on  Thu, Aug 6 2009, 22:47 GMT

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