Friday November 21, 2008 - 15:18:33 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (21 November 2008)
The euro moved higher vis-√†-vis the U.S. dollar today as the single
currency tested offers around the US$ 1.2635 level and was supported around the
$1.2425 level. The common currency
continued its ascent as traders continued to punish the greenback for a variety
of factors. First, there is increasing
talk about deflation hitting the U.S. economy. St. Louis
Fed President Bullard last night said the Fed may need to rely on ‚Äúquantitative
easing‚ÄĚ to fend off deflation if it emerges.
The Federal Open Market Committee is expected to ease its federal funds
target rate by 50bps on 16 December.
equity markets continued their rout yesterday with the Dow Jones closing at its
lowest level since March 2003, right around the 50% retracement of the move
from 769 to 14,198. There is increasing
speculation that U.S.
banking giant Citigroup may pursue a tie-up with another financial
institution. The company was a $23 stock
last month and is a $5 stock today.
Third, dealers are reducing exposure to the greenback after U.S. automakers
failed to get a bailout deal from the Bush administration and Congress this
week. In eurozone news, European Central Bank member Mersch warned EMU-15
prices could decline next year but said he does not anticipate any deflation. ECB member Nowotny reiterated ‚ÄúBecause of the
significantly lower inflationary pressures there are certainly possibilities
for interest rate policy.‚ÄĚ ECB‚Äôs Weber
added ‚ÄúOwing to a remarkable decline in inflationary pressure in the medium
term and rapidly deteriorating economic prospects, euro-area monetary policy in
my view has enough leeway for further easing if necessary.‚ÄĚ Data released in the eurozone saw the EMU-15
November Market PMI index decline to a record low of 39.7 while the prices
charged index receded to 47.6, its lowest level since July 2003. Likewise, the EMU-15 November Market PMI
services index fell to 43.3. The German
government won approval to raise ‚ā¨18.5 billion in new net borrowing in
2009. Other data released today saw
French October consumer spending decline 0.4%.
Euro bids are cited around the US$ 1.2135 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•95.50 level and was supported around the ¬•93.65
levels. As expected, Bank of Japan‚Äôs
Policy Board kept its overnight call rate unchanged at 0.3% and Governor
Shirakawa warned ‚ÄúThe global economy is expected to experience a severe
adjustment for some time. Reflecting
this, it will take a significant amount of time for conditions to return that
will allow an economic recovery in Japan.‚ÄĚ He also warned against cutting rates again
right now, reporting ‚ÄúJapan's
interest rates are already at very low levels. If we were to ensure smooth
functioning of money markets, cutting rates further could cause various
problems. We need to be especially aware of this point at a time like this,
when financial market functions are worsening.‚ÄĚ Notably, the government reduced
its economic assessment for the sixth time this year, reporting ‚ÄúAmid a further
slowdown in the global economy, the downward pressure on the Japanese economy
is increasing rapidly.‚ÄĚ The government
also indicated exports are worsening and ‚Äúdecreasing.‚ÄĚ The Nikkei 225 stock index climbed 2.70% to
close at ¬•7,910.79. U.S. dollar offers
are cited around the ¬•104.15 level. The euro moved higher vis-√†-vis the yen
as the single currency tested offers around the ¬•120.15 level and was supported
around the ¬•116.45 level. The British pound moved higher
vis-√†-vis the yen as sterling tested offers around the ¬•143.20 level while the Swiss franc moved higher vis-√†-vis
the yen and tested offers around the ¬•78.30 level. The Chinese yuan appreciated
vis-√†-vis the U.S. dollar as the greenback closed at CNY 6.8311 in the
over-the-counter market, down from CNY 6.8345.
Some economists are predicting China‚Äôs economy could experience
deflation next year and this will lead to increased speculation about an easier
monetary policy from People‚Äôs Bank of China.
British pound appreciated sharply vis-√†-vis the U.S. dollar today as cable
tested offers around the US$ 1.5060 level and was supported around the $1.4710
level. Data released in the U.K. today saw
home repossessions print at 11,300 in Q3, up from 10,100 in Q2. Bank of England Chief Economist Dale yesterday
revealed the Monetary Policy Committee will reduce interest rates further if
required to ensure inflation meets its 2% medium-term target. Commenting on exchange rates, he reported ‚ÄúSterling has fallen by
around 15 percent in the past year and that should help to support exports.‚ÄĚ Cable
bids are cited around the US$ 1.4315 level.
The euro moved lower
vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.8370
level and was capped around the ‚ā§0.8465 level.
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 1.2175 level and was capped around the CHF 1.2300 figure. Swiss National Bank yesterday surprised the
markets today by reducing interest rates by 100bps, its third reduction in
rapid succession. SNB lowered its target
band for three-month Swiss franc LIBOR to 0.50% - 1.50% from the previous 1.50%
- 2.50% range and is now targeting 1.0%.
Officials reported ‚ÄúInternational economic conditions have worsened
appreciably, bringing a higher risk of a marked slowdown in economic activity
next year.‚ÄĚ Notably, today‚Äôs action came
just weeks before the scheduled December quarterly review. U.S. dollar offers are cited around the CHF
1.2450 level. The euro moved higher vis-√†-vis the Swiss franc as the single
currency tested offers around the CHF 1.5415 level while the British pound moved higher vis-√†-vis the Swiss franc and tested
offers around the CHF 1.8405 level.
Australian dollar moved higher vis-√†-vis the U.S. dollar today as the
Aussie tested offers around the US$ 0.6280 level and was supported around the
$0.6075 level. The pair came close to
establishing new multi-year lows. Most
traders expect Reserve Bank of Australia
will continue to ease monetary policy.
Australian dollar offers are cited around the US$ 0.6965 level.
Canadian dollar moved higher vis-√†-vis the U.S. dollar today as the
greenback tested bids around the C$ 1.2740 level and was capped around the C$
1.2980 level. The pair has gained about
twelve handles in the past three weeks.
Data released in Canada
today saw October consumer prices register their largest decline in nearly 50
years, off 1% m/m and up 2.6%. The core
rate was unchanged at 1.7%. Bank of
Canada is expected to reduce interest rates further on 9 December. U.S. dollar bids are cited around the C$
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