Monday October 6, 2008 - 18:07:51 GMT
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Forex Market Commentary and Analysis (6 October 2008)
The euro depreciated sharply vis-Ã -vis
the U.S. dollar today as the single
currency tested bids around the US$ 1.3470 level and was capped around the
$1.3705 level. The common currency
reached its lowest level since 22 August.
European leaders convened over the weekend and decided not to compile a
massive coordinated bailout similar to the US$ 700 billion bailout that the
U.S. Senate and House passed last week.
There is growing talk that global central banks may announced a
concerted interest rate but as early this week yet some dealers believe this is
highly unlikely. Germany joined
the list of countries that have guaranteed bank deposits. European financial institutions such as
Fortis, UniCredit, and Hypo Real Estate are facing significant problems. The Federal Reserve today announced it will
offer US$ 150 billion in 85-day credit through its Term Auction Facility and
announced it will begin to pay interest on depository institutionsâ€™ required
and excess reserve balances. The Fed
also announced that US$ 900 billion of Term Auction Facility credit will be
potentially outstanding over the year end.
Significant demand for U.S. dollars remains a major problem for the
financial markets. Banks are hording U.S. dollars and three-month interbank
lending rates remain above 5.0%, a stark contrast to interest rate expectations
that suggest the Federal Open Market Committee will reduce the federal funds
target rate by 50bps to 1.50%. Euro bids are cited around the US$ 1.3320
The yen appreciated
sharply vis-Ã -vis the U.S. dollar today as the greenback tested bids around
the Â¥100.20 level and was capped around the Â¥105.15 level. The pair has not been this weak since early
April. The yenâ€™s gains across the board
were precipitated by a broad sell-off in Asian and European capital markets
that resulted in a precipitous decline in U.S. equity markets. Contagion has spread to the U.K. and continental Europe
financial sectors and traders are borrowing less yen to invest proceeds in
higher-yielding currencies. Finance
minister Nakagawa said Japan
is not considering a concerted foreign exchange intervention with U.S. and
European authorities. Bank of Japan
Policy Boardâ€™s interest rate announcement is expected overnight and the central
bank is seen as keeping the overnight call rate unchanged at 0.50%. Comments from BoJ Governor Shirakawa will be
closely watched overnight. It is
possible the BoJ could reduce its Lombard rate
in what would be a compromise move. Swap contracts on Japanâ€™s
overnight call rate are pricing in about a 60% chance of a 25bps rate cut by
early 2009. Prime Minister Aso said he
is not now contemplating dissolving Parliament and an early election. Data released in Japan overnight saw August
machinery orders off 3.5% m/m. The Nikkei
225 stock index lost 4.25% to close at Â¥10,473.09. U.S. dollar offers are cited around the Â¥104.15
level. The euro moved sharply lower vis-Ã -vis the yen as the single
currency tested bids around the Â¥135.55 level and was capped around the Â¥143.85
level. The British pound and Swiss franc
weakened significantly vis-Ã -vis the yen as the crosses tested bids around
the Â¥174.10 and Â¥87.90 levels, respectively.
The Chinese yuan appreciated
vis-Ã -vis the U.S. dollar as the greenback closed at CNY 6.8430 in the
over-the-counter market, down from CNY 6.8485.
Peopleâ€™s Bank of China reported it will maintain yuan stability.
The British pound depreciated sharply vis-Ã -vis the U.S. dollar today
as cable tested bids around the US$ 1.7335 level and was capped around the
$1.7715 level. Cable reached its lowest
level since April 2006. The U.K. government
on Friday raised the level of deposits secured under its system to â‚¤50,000 per
person. The U.K. government today announced it
has no plans to guarantee deposits fully.
RICS reported U.K.
construction activity fell at a record pace last month. Cable bids are cited around the $1.7045
level. The euro weakened vis-Ã -vis
the British pound as the single currency tested bids around the â‚¤0.7700 figure
and was capped around the â‚¤0.7795 level.
The Swiss franc depreciated vis-Ã -vis the U.S. dollar today as the
greenback tested offers around the CHF 1.1485 level and was supported around
the CHF 1.1275 level. The pair reached
its highest level since 27 December 2007.
The Swiss media reported Swiss National Bank may reduce interest rates
by at least 25bps by December. U.S.
dollar offers are cited around the CHF 1.1800 figure. The
euro and British pound moved lower vis-Ã -vis the Swiss franc as the crosses
tested bids around the CHF 1.5385 and CHF 1.9775 levels, respectively.
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