Monday September 22, 2008 - 17:58:10 GMT
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Forex Market Commentary and Analysis (22 September 2008)
The euro appreciated
vis-Ă -vis the U.S. dollar today as the single currency tested offers around
the US$ 1.4735 level and was supported around the $1.4435 level. Technically, todayâ€™s intraday high was right
around the 76.4% retracement of the move from $1.4310 to $1.6040. Group of
Seven finance ministers and central bank governors released a statement this
weekend that pledged â€śheightened close cooperationâ€ť to safeguard the
international financial system. Group of
Seven officials convene in Washington,
D.C. on 10 October. The U.S. government announced a plan
late last week to initiate a US$ 700 billion asset purchase plan to transfer
toxic assets off of banksâ€™ balance sheets.
The plan could be similar to the Resolution Trust Corporation vehicle
government enacted at least fifteen years ago.
The Federal Reserve gave tentative permission this weekend for Goldman
Sachs and Morgan Stanley to transition from investment banks to commercial
banks, a move that would open them up to more stringent regulatory scrutiny. The United Arab
Emiratesâ€™ central bank established an emergency bank
lending facility worth 50 billion UAE dirhams for banks operating in the UAE
while Reserve Bank of Australia
injected A$ 2.025 billion in liquidity.
Interbank funding rates eased today with three-month dollar rates at
3.15% today, down from 5% last week.
Two-year dollar swap spreads were around 118 bps today compared with 155
bps last week, an indication of decreasing risk aversion. In
eurozone news, the European Central Bank allotted US$ 40 billion in
overnight funds at 3.25%. Euro bids are
cited around the US$ 1.3840 level.
The yen appreciated
sharply vis-Ă -vis the U.S. dollar today as the greenback tested bids around
the ÂĄ105.90 level and was capped around the ÂĄ107.15 level. Technically, todayâ€™s intraday high was right
around the 23.6% retracement of the move from ÂĄ95.70 to ÂĄ110.65. As expected, former foreign secretary Taro
Aso became the new head of the Liberal Democratic Party and will likely be
voted the next Prime Minister by parliament on Wednesday. Aso is likely to call a snap election after
being elected. Minutes from Bank of
Japanâ€™s August Policy Board meeting were released in which policymakers
expressed concern that the U.S.â€™
economic stagnation could become prolonged.
Data released in Japan
overnight saw the July all-industries index up +0.8% m/m while the Q2 output
gap was downwardly revised to -0.4%, the first negative print in seven quarters
and evidence of decreasing demand. Finance minister Ibuki said he â€śwelcomedâ€ť
the U.S. governmentâ€™s plan
to manage bad debts on banksâ€™ balance sheets and said he doesnâ€™t see the need
to do the same thing. BoJ will offer its
first ever U.S. dollar funding on Wednesday, providing US$ 30 billion in
one-month funds. The Nikkei 225 stock
index gained 1.42% to close at ÂĄ12,090.59.
U.S. dollar bids are cited around the ÂĄ102.45 level. The
euro gained ground vis-Ă -vis the yen as the single currency tested offers
around the ÂĄ156.60 level and was supported around the ÂĄ153.80 level. The
British pound and Swiss franc came off vis-Ă -vis the yen as the crosses
tested bids around the ÂĄ194.25 and ÂĄ96.30 levels, respectively. The Chinese
yuan appreciated vis-Ă -vis the U.S. dollar today as the greenback closed at
CNY 6.8300 in the over-the counter market, down from CNY 6.8350.
The British pound appreciated
vis-Ă -vis the U.S. dollar today as cable tested offers around the US$
1.8545 level and was supported around the $1.8260 level. Stops were reached above the $1.8480 level, representing
the 38.2% retracement of the move from $2.0155 to $1.7440. Bank of England lent US$ 26 billion today at
an average rate of 2.056% in an attempt to provide U.S. dollar liquidity. Data released in the U.K. today saw
Rightmove September house prices off 3.3% y/y.
BoE Deputy Governor Gieve reported â€śWhile we must remain vigilant for
any signs of inflation expectations drifting upwards, the news on that front is
encouraging. On the other side the risk we must be careful not to underestimate
is the deflationary consequences of the credit crisis.â€ť Cable bids are cited around the $1.7605
level. The euro moved higher vis-Ă -vis the British pound as the single
currency tested offers around the â‚¤0.7970 level and was supported around the
The Swiss franc appreciated sharply vis-Ă -vis the U.S. dollar today
as the greenback tested bids around the CHF 1.0735 level and was capped around
the CHF 1.1050 level. Technically,
todayâ€™s intraday low was right around the 38.2% retracement of the move from
CHF 1.2465 to CHF 0.9645. Traders moved
into the Swiss franc on safe-haven buying.
Swiss National Bank allotted US$ 10 billion at an average rate of 2.72%.
U.S. dollar offers are cited around the
CHF 1.1430 level. The euro and British pound weakened vis-Ă -vis the Swiss franc as
the crosses tested bids around the CHF 1.5880 and CHF 1.9945 levels,
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