Tuesday August 11, 2009 - 19:27:55 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (11 August 2009)
The euro gained marginal ground vis-Ă -vis the U.S.
dollar today as the single currency
tested offers around the US$ 1.4185 level and was supported around the $1.4110 level. Most traders believe the Federal Open Market
Committee will keep interest rates unchanged when its policy decision is
announced tomorrow. Many economists
believe the FOMC will keep interest rates unchanged through at least 2010 on
account of the global credit crisis.
Traders are curious to see if the Fed changes any significant verbiage
in its statement and gives any further clues about unwinding its massive
monetary stimuli. The Fedâ€™s balance
sheet is currently right around the US$ 2 trillion level and has been declining
over the past few weeks, an indication it is gradually reducing some of its
quantitative easing programs. One
program that traders are paying close attention to is the Fedâ€™s purchase of
U.S. Treasury securities. It is expected
the Fed will allow its current US$ 300 billion purchase program to expire when
that amount is reached, likely in September.
There is speculation the Fed will be actively discussing pending
problems in the U.S.
commercial real estate market. There is
an expectation the sector could worsen significantly early next year. Fed Chairman Bernanke recently noted the Fed
is â€śpaying very close attentionâ€ť to the sector and highlighted â€śincreased
vacancy, declining rents, and falling prices.â€ť
Data released in the U.S.
today saw Q2 non-farm productivity improve 6.4% from a downwardly revised Q1
reading of 0.3%. While these data mean U.S. workers
are becoming more productive, they also signify higher productivity is
coincident with considerably higher unemployment. Q2 labour costs were off 5.8%, down from a
revised -2.7% in Q1, and June wholesale inventories were off 1.7%, down from a
revised -1.2% in May. In eurozone news, the German July
wholesale price index was off 0.5% m/m and 10.6% y/y while the July consumer
price index was unchanged m/m and off 0.5% y/y.
bids are cited around the US$ 1.3900 figure.
The yen appreciated vis-Ă -vis the U.S. dollar today as the
greenback tested bids around the ÂĄ95.75 level and was capped around the ÂĄ97.15 level.
The yen extended recent gains across the
board with U.S.
equities under pressure and risk appetite lower globally, favouring the
yen. As expected, Bank of Japanâ€™s Policy
Board voted unanimously to keep the overnight call rate target unchanged at
0.10% and kept its economic assessment unchanged. BoJ Governor Shirakawa pessimistically noted â€śEven
if we have a recovery, I donâ€™t think its strength will be impressive. I canâ€™t
be confident about the strength of final demand after inventory adjustments and
policy measures run their course.â€ť The
central bank reiterated it remains concerned about â€śdownside risks to economic
activity and pricesâ€ť and merely noted the economy has â€śstopped worsening.â€ť Data to be released next week may show Japanâ€™s economy
expanded around 4.0% in the three months that ended 30 June. Deflationary pressures have returned to the
economy. Consumer prices excluding fresh
food fall a record 1.7% in June and this may pressure policymakers into keeping
rates low through 2011. Data released in
overnight saw the governmentâ€™s consumer sentiment index improve to 39.4 from
37.6 in June, its highest level since November 2007 and the seventh consecutive
monthly improvement. The Nikkei 225 stock
index climbed 0.58% to close at ÂĄ10,585.46.
U.S. dollar offers are cited around the ÂĄ104.15 level. The
euro moved lower vis-Ă -vis the yen as the single currency tested bids around
the ÂĄ135.25 level and was capped around the ÂĄ137.40 level. The
British pound moved lower vis-Ă -vis the yen as sterling tested bids around
the ÂĄ157.80 level while the Swiss franc
moved lower vis-Ă -vis the yen and tested bids around the ÂĄ88.40 level. In Chinese news, the U.S. dollar gained
ground vis-Ă -vis the Chinese yuan as the greenback closed at CNY 6.8355 in the
over-the-counter market, up from CNY 6.8313.
released in China
overnight saw July exports decline a staggering 23% y/y while July factory
output was up a weaker-than-expected 10.8%.
Also, July CPI was off 1.8% y/y and July PPI was off 8.2% y/y with July
retail sales up 15.2% y/y.
British pound lost minor ground vis-Ă -vis the U.S. dollar today as cable
tested bids around the US$ 1.6430 level and was capped around the $1.6520 level. Traders await the release of Bank of Englandâ€™s
quarterly inflation report tomorrow. Data
released in the U.K.
today saw the June DCLG house price index off 10.7% while the June goods trade
deficit increased to â‚¤6.5 billion from â‚¤6.2 billion. Other news out of the U.K. today
suggests the BoE earned more than a 10% return on its â‚¤918 million portfolio of
corporate bonds. Cable bids are cited around the US$ 1.6215
level. The euro moved higher vis-Ă -vis the British pound as the single
currency tested offers around the â‚¤0.8615 level and was supported around the
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