Tuesday July 28, 2009 - 14:44:46 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (28 July 2009)
The euro appreciated modestly vis-√†-vis the U.S.
dollar today as the single currency
tested offers around the US$ 1.4305 level and was supported around the $1.4220 level.
Traders are awaiting the release of Q2
U.S. gross domestic product data on Friday and next week‚Äôs July non-farm
payrolls report. Recent U.S. economic data ‚Äď including housing data ‚Äď
have been on the upswing and dealers are curious to determine if the improving U.S. data are coincident with a U.S.
labour market that has already bottomed out.
Data released in the U.S.
today saw the May S&P/ Case-Shiller home price index was off 17.06% y/y, an
improvement from the revised April print of -18.10%. Also, July consumer confidence fell to 46.6
from 49.3 in June while the the July Richmond Fed manufacturing index printed
at 14, up from 6 in June. Another
indication that the global credit crunch continues to thaw is a narrowing of the
LIBOR-OIS spread, a measure of banks‚Äô reluctance to lend. The spread fell below 30 bps for the first
time in eighteen months and is now at its lowest level since January 2003, far
below the 364 bps level from 10 October 2008 when Lehman Brothers was failing
as a viable financial institution. Effectively,
the spread measures the premium banks charge over what traders are predicting
the Federal Reserve‚Äôs effective federal funds rate will average over the
following three months. Prior to the
beginning of the credit crunch in August 2007, the spread average about 11 bps
in the five years leading up to the credit market dislocations. In
eurozone news, the Centre for Economic Policy Research and Bank of Italy
released their EuroCoin indicator today and it improved for the fifth
consecutive month, lifting to -0.42 in July ‚Äď the highest level since
August. These data evidence an
improvement in industrial production.
CEPR also reported the economic recession bottomed out in the first
quarter of the year when GD was off 2.5% q/q and 4.8% y/y. Notably, EMU-16 industrial production was up
0.5% m/m in May, the first improvement since August 2008, while the annual
measure fell 17.0%, the smallest pullback since January 2009. Euro
bids are cited around the US$ 1.3900 figure.
The yen appreciated vis-√†-vis the U.S. dollar today as the
greenback tested bids around the ¬•94.40 level and was capped around the ¬•95.25
level. The U.S. dollar onslaught
continued as the greenback fell to its lowest level this year relative to six
major currencies. The yen has also been
on the defensive recently as improving equity markets have directed investment
capital out of Japan
and into higher-yielding international assets.
The yen, however, shook off equities-supportive news that Deutsche
Bank‚Äôs net income rose to ‚ā¨1.09 billion from ‚ā¨649 million one year ago. Japanese exporters have been repatriating
overseas assets recently as the yen has declined and the end of the month is
near. The Nikkei 225 stock index lost
0.01% to close at ¬•10,087.26. U.S.
dollar offers are cited around the ¬•104.15 level. The
euro moved lower vis-√†-vis the yen as the single currency tested bids around
the ¬•134.30 level and was capped around the ¬•135.95 level. The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•155.60 level while the Swiss franc
moved lower vis-√†-vis the yen and tested bids around the ¬•88.20 level. In Chinese news, the U.S. dollar gained
ground vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8315 in the
over-the-counter market, up from CNY 6.8283.
The Chinese government yesterday called on the U.S. government to maintain a stable value of
the U.S. dollar to protect China‚Äôs
massive holdings of U.S.
government bonds. Chinese finance
minister Zhu reported ‚ÄúThe Chinese government is
responsible, and our responsibility is to the Chinese people. Of course, we are
concerned about the safety of dollar assets.‚ÄĚ People‚Äôs Bank of China today
reported consumer prices are starting to stabilize and added inflation could
reach bottom by the end of this quarter, also noting that economic growth was
stronger in the second quarter than expected at an annualized 14.9% rate.
British pound climbed marginally vis-√†-vis the U.S. dollar today as cable
tested offers around the US$ 1.6555 level and was supported around the $1.6455
level. Positive data were released by
CBI today that noted the July monthly distributive trades retail sales balance
improved to -15 from -17 in June. These
data could suggest the worst of the retail slump has passed in the U.K. although
economists note final private demand remains weak. Cable bids are cited around the US$ 1.6260
level. The euro moved lower vis-√†-vis the British pound as the single
currency tested bids around the ‚ā§0.8620 level and was capped around the ‚ā§0.8645
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested
bids around the CHF 1.0655 level and was capped around the CHF 1.0715
level. Data released in Switzerland
today saw the June UBS consumption indicator improve to 0.96 in June from a
revised 0.75 in May. These data suggest final
private demand is improving despite rising unemployment. Recent data have
revealed manufacturing weakened at its slowest pace in eight months in June and
leading economic indicators recently improved for the second consecutive
month. Germany is also benefiting from an
improvement in German business confidence that reached a nine-month high this
month. U.S. dollar offers are cited
around the CHF 1.0910 level. The euro came off vis-√†-vis the Swiss
franc as the common currency tested bids around the CHF 1.5220 level while the British pound fell vis-√†-vis the
Swiss franc as sterling tested bids around the CHF 1.7600 figure.
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