Friday March 7, 2008 - 15:22:48 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (7 March 2008)
The euro depreciated
vis-Ă -vis the U.S. dollar today as the single currency tested bids around
the US$ 1.5320 level and was capped around the $1.5460 level. The common currency failed to hold many of
the gains it earned in the North American session following the release of
February non-farm payrolls data. It was
reported the U.S.
economy lost 63,000 jobs last month with the unemployment rate at 4.8% and
average hourly earnings up +0.3%. There
were also downward revisions of -41,000 and -5,000 to Decemberâ€™s and Januaryâ€™s
jobs tallies, respectively. Just prior
to the release of these data, the Federal Reserve announced it was increasing
the amounts outstanding in its Term Auction Facility to US$ 100 billion to
offer additional liquidity to the market.
The Fed also announced it would initiate a series of repurchase
agreements aggregating US$ 100 billion as 28-day repos. The Fed also noted it is in â€śclose
consultation with foreign central bank counterparts concerning liquidity conditions
in marketsâ€ť and this has some dealers wondering if global monetary authorities
may be orchestrating foreign exchange intervention. There had been extensive rumours overnight
that the Fed would announce another intermeeting rate cut but they have not yet
materialized. Most traders believe the Federal Open Market Committee will ease
monetary policy further on 18 March and/ or 30 April. San Francisco Fed President Yellen said the U.S. economic
slowdown will decrease inflationary pressures. Dallas Fed President Fisher
warned â€ś(The Fed) reacted with very deliberate actions which took place over a
very short period of time, and I think that shouldn't lead markets to
expectations that we will continue to react in that manner. I would discourage
you from thinking that simply because of significant action in credit markets
like we had yesterday, that suddenly we are going to have a meeting of the open
market committee and that suddenly we are going to move Fed funds rates in
response.â€ť In eurozone news, German
January industrial output was up 1.8% m/m and 6.9% y/y. European Central Bank member Weber hawkishly
said the prospect of weaker EMU-15 economic growth is not enough reason to
anticipate weaker inflation pressures. Euro
bids are cited around the US$ 1.5145 level.
The yen extended
recent gains vis-Ă -vis the U.S. dollar today as the greenback tested bids
around the ÂĄ101.40 level and was capped around the ÂĄ102.90 level. The pair reached its lowest level since
January 2000 and was within a few pips of reaching its lowest level since
December 1995. Traders are wondering if
current levels will result in yen-selling intervention by Japanese monetary
authorities. As expected, Bank of
Japanâ€™s Policy Board kept the overnight call rate unchanged at 0.50%. The central bank downgraded its assessment of
the economy for March, reporting the pace of global growth is slowing on
account of higher energy and materials prices.
Outgoing BoJ Governor Fukui reported â€śdownside risks, led by the U.S. economy,
are growing stronger.â€ť He added â€śInvestors are now seeking more safe-haven
assets, which came about because of the irregular movement of stock market
prices and forex market rates.â€ť
economy, he added â€śWhile the Japanese economy is likely to slow, chances remain
high that it will maintain its steady growth under a stable price environment,
as the virtuous cycle of rising production, income and spending remains
intact.â€ť Concerning the yen, Fukui
noted â€śWhile the stronger yen affects our export competitiveness, we should
also assess the impact that a stronger yen could yield on trading conditions,
including the impact on the cost of imported energy and materials.â€ť The government formally nominated BoJ Deputy
Governor Muto to succeed Fukui,
who retires on 19 March, and his nomination will be fiercely challenged by
opposition political parties. Data
released in Japan overnight
confirmed that Japanâ€™s
foreign exchange reserves reached a record US$ 1.01 trillion overnight. The Nikkei 225 stock index lost 3.27% to
close at ÂĄ12,782.80. Dollar bids are
cited around the ÂĄ101.20 level. The euro weakened vis-Ă -vis the yen as
the single currency tested bids around the ÂĄ156.70 level and was capped around
the ÂĄ158.25 level. The British pound and Swiss franc lost ground vis-Ă -vis the yen as
the crosses tested bids around the ÂĄ204.85 and ÂĄ99.80 levels,
respectively. The Chinese yuan weakened vis-Ă -vis the U.S. dollar as the
greenback closed at CNY 7.1110 in the over-the-counter market, up from CNY
7.1059. Peopleâ€™s Bank of China Vice Governor Yi Gang reported the central bank
â€świll make the exchange rate regime move to a market-based, floating regime.
The flexibility of the exchange rate will increase in the future.â€ť
The British pound appreciated
sharply vis-Ă -vis the U.S. dollar today as cable tested offers around the
US$ 2.0215 level and was supported around the $2.0085 level. Cable reached its highest level since 18
December 2007 and unlike the euro, managed to sustain some of the gains it
earned after the release of the weak U.S. non-farm payrolls
numbers. Data released in the U.K. today saw
ISD pay deals remain steady at 3.5% in the three months to February. Bank of Englandâ€™s Monetary Policy Committee
is expected to possibly reduce interest rates next month or in April. Cable
bids are cited around the US$ 2.0040 level.
The euro weakened vis-Ă -vis the
British pound as the single currency tested bids around the â‚¤0.7600 figure and
was capped around the â‚¤0.7655 level.
The Swiss franc
depreciated vis-Ă -vis the U.S. dollar today as the greenback tested offers
around the CHF 1.0285 level and was supported around the CHF 1.0135 level. Swiss National Bank reported it is not going
to participate in the Fedâ€™s latest Term Auction Facilities to obtain U.S.
dollar liquidity. U.S. dollar offers are
cited around the CHF 1.0475 level. The euro and British pound rallied
vis-Ă -vis the Swiss franc as the crosses tested offers around the CHF 1.5770
and CHF 2.0740 levels, respectively.
The Australian dollar rallied vis-Ă -vis
the U.S. dollar today as the Aussie
tested offers around the US$ 0.9370 level and was supported around the $0.9245
level. Australian dollar bids are cited
around the US$ 0.9225 level. The New Zealand dollar moved higher
vis-Ă -vis the U.S. dollar as the kiwi tested offers around the US$ 0.8010 level
and was supported around the $0.7905 level.
dollar bids are cited around the US$ 0.7795 level.
The Canadian dollar weakened marginally
vis-Ă -vis the U.S. dollar today as
the greenback tested offers around the C$ 0.9865 level and was supported around
the C$ 0.9735 level. Data released in Canada today
saw new jobs creation of 43,300 in February, much higher-than-expected, and the
unemployment rate was unchanged at 5.8%.
February wage growth was up 4.9% y/y.
U.S. dollar offers are cited around the C$ 0.9955 level.
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