The euro depreciated vis-Ă -vis the U.S. dollar today as the single currency tested bids around the US$ 1.2780
level and was capped around the $1.2930 level.The common currency continues to move lower following the Federal Open
Market Committeeâ€™s decision this week to change the composition of its balance
sheet by purchasing U.S. Treasuries with proceeds from maturing mortgage-backed
securities debt.Even though the Fed
make it very clear its balance sheet would remain unchanged in size at US$
2.054 trillion, traders liken its decision to reinvest proceeds in the U.S.
Treasury market to Japanese-style monetary tactics.Some Fed-watchers suggest the Fed is merely
monetizing U.S. debt, akin to printing money and underwriting the Obama
administrationâ€™s fiscal programs.Two-year
U.S. Treasury note yields are trading just above 0.50% and 10-year U.S. note yields
are trading below 2.75%, all-time lows.Many
investors are reducing their exposure to higher-yielding currencies like the
euro and riskier assets like equities as a result.Todayâ€™s intraday low was right around the 50%
retracement of the $1.3690 - $1.1875 range.Technicians are eyeing the $1.2645 level as the pairâ€™s next significant
downside target.Data released in the
U.S. today saw the July import price index expand 0.2% m/m and 4.9% y/y.Also, weekly initial jobless claims moved
higher to a multi-week high of 484,000 and continuing jobless claims moved
lower to 4.452 million.Data to be
released tomorrow include July consumer prices, July retail sales, June
business inventories, and August University of Michigan consumer
sentiment.In eurozone news, data released today saw EMU-16 industrial
production decline 0.1% m/m and climb 8.2% y/y.Ten-year yields on German bunds declined to record lows and there are
reports that Eurosystem central banks are purchasing the bonds of Irish
banks.Credit default swaps on Irish
debt are now at seventeen-month highs, underscoring the risk of default
there.The European Central Bankâ€™s
monthly bulletin was released today and it reiterated the stress tests on banks
confirmed the resilience of eurozone institutions to economic and financial
shocks.The ECB also suggested Q3
economic activity may improve and called on member states to â€śimplement
credible medium-term consolidation strategies aimed at restoring fiscal
sustainability.â€ťEuro offers are
cited around the US$ 1.3240 level.
The yen depreciated
vis-Ă -vis the U.S. dollar today as the greenback tested offers around the ÂĄ85.95
level and was supported around the ÂĄ84.90 level. The pair again traded below
the psychologically-important ÂĄ85 figure and many traders are loath to short the
pair further on concerns Japanese monetary authorities may conduct yen-selling
intervention.Prime Minister Kan
described the yenâ€™s recent surge as â€śroughâ€ť and Bank of Japan was reported to
be officially checking levels with commercial banks, sometimes a precursor to
actual intervention.Both BoJ Governor
Shirakawa and finance minister Noda verbally intervened, saying they are
monitoring exchange rates â€śvery closely.â€ť Noda added â€śexcessive and disorderly
movements in currencies can be harmful to the stability of the economy and
financial markets.â€ťMany dealers believe
Japanese officials will not undertake unilateral yen-selling intervention and
report the likelihood of success of such action is relatively slim.As expected, Bank of Japan kept its economic
assessment unchanged today with an official noting â€śWe are carefully watching
which direction the market is heading and how market moves affect Japanâ€™s
economy, but we havenâ€™t judged that downside risks have increased.â€ť Data
released in Japan overnight saw June industrial production decline 1.1% m/m and
climb 17.3% y/y while June capacity utilization fell 2.1% m/m.Also, July consumer confidence ticked lower
to 43.4 from 43.6 in June.The Nikkei
225 stock index lost 0.86% to close at ÂĄ9,212.59.U.S. dollar bids are cited around the ÂĄ85.30 level.The euro moved higher vis-Ă -vis the yen
as the single currency tested offers around the ÂĄ110.90 level and was supported
around the ÂĄ109.20 level.The British pound moved higher vis-Ă -vis
the yen as sterling tested offers around the ÂĄ134.65 level while the Swiss franc moved higher vis-Ă -vis
the yen and tested offers around the ÂĄ82.05 level. In Chinese news, the U.S. dollar appreciated vis-Ă -vis the Chinese
yuan as the greenback closed at CNY 6.7848 in the over-the-counter market, up
from CNY 6.7750. Notably, new mortgage
loans in Shanghai were off 98% y/y in July as the government cracked down on
property speculation.These data
contributed to the view that the Chinese economy is slowing and the yuan came
off.Data released in China this week
saw July money supply aggregates slow, producer prices growth slow to +4.8% y/y,
July retail sales growth slow to +17.9% y/y, and July industrial production growth decelerate
to +13.4% y/y.
British pound depreciated vis-Ă -vis the U.S. dollar today as cable tested bids
around the US$ 1.5560 level and was capped around the US$ 1.5710 level. Cableâ€™s intraday low was right around the 50%
retracement of the $1.6875 - $1.4230 range.Yesterday, Bank of England released its Quarterly Inflation Report in
which it projected U.K. inflation will fall well below its 2% inflation target
in two years even if interest rates remain at record lows.BoE cited â€śhighly uncertainâ€ť prospects and it
appears likely the Monetary Policy Committee will keep rates unchanged for some
time.BoE revised higher its 2011
inflation forecast but now estimates 2012 inflation will be around 1.4%.Similarly, economic growth is expected to be
just above 3% in two yearsâ€™ time, down from its estimate ofâ€śaroundâ€ť 3.6% in its May Quarterly Inflation
Report.BoE Governor King said the Bank
may conduct additional quantitative easing if required and can hold, tighten,
or loosen policy.Data released in the
U.K. this week saw July Nationwide consumer confidence decelerate to +56 from
the prior reading of +63.Also, the July
claimant count was unchanged at 4.5% with the net change off 3,800 and the ILO
unemployment measure steady at 7.8%.Additionally, June average weekly earnings were up 1.3% y/y.Cable bids are cited around the US$ 1.5385
level.The euro appreciated vis-Ă -vis the British pound as the single
currency tested offers around the ÂŁ0.8265 level and was supported around the
franc appreciated vis-Ă -vis the U.S. dollar today as the greenback tested bids
around the CHF 1.0465 level and was capped around the CHF 1.0625 level. Data to be released in Switzerland tomorrow include
July producer and import prices.Data
released in Switzerland this week saw the July SECO consumer confidence measure
climb to +16 from the prior reading of +14.U.S. dollar offers are cited around the CHF 1.0980 level.The
euro depreciated vis-Ă -vis the Swiss franc as the single currency tested bids
around the CHF 1.3460 level while the
British pound moved lower vis-Ă -vis the Swiss franc and tested bids around
the CHF 1.6300 figure.
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POTENTIAL PRICE RISK: HIGH to Medium- Wed --14:15 GMT-- US- Industrial Production
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