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Tuesday August 31, 2010 - 19:58:50 GMT
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FX Market Commentary and Analysis (31 August 2010)

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2740 level and was supported around the $1.2625 level.  The common currency gave back some of last month’s gains in August and its intramonth support was just below the 50% retracement of the $1.1880 - $1.3335 range.  Dealers lifted the common currency to intraday highs during the North American session before booking profits.  Data released in the U.S. today saw the June CaseShiller house price index come in less-than-expected at 0.28% m/m and 4.23% y/y, the latest evidence of a U.S. housing market that is failing to realize sustainable improvements after the U.S. government’s house-purchase tax incentive program ended.  Other data saw the August Chicago purchasing manager index decline to 56.7 from the prior reading of 62.3, a sizable decline.  Moreover, August consumer confidence climbed to 53.5 from the prior reading of 51.0, exceeding expectations.  Minutes from the Federal Open Market Committee’s August meeting were released today in which some policymakers expressed concern that the markets might misinterpret their policy statement as an indication the Fed was ready to resume large-scale asset purchases.  Some Fed officials speculated the economic impact of the FOMC’s decision “likely would be quite small.”  Additionally, some Fed officials saw “increased downside risks to the outlook for both growth and inflation” and expressed concern that additional economic shocks might cause “significant slowing in growth.”  In remarks at the Fed’s Jackson Hole symposium, Bernanke said Fed policymakers have not agreed on “specific criteria or triggers for further action.”  In eurozone news, EMU-16 August flast consumer price inflation ticked lower to +1.6% from the prior reading of +1.7% while the eurozone July unemployment rate remained steady at 10.0%.  Also, German unemployment fell 17,000 in August and remained steady at 7.6%.  French unemployment data will be released tomorrow.  Euro offers are cited around the US$ 1.3240 level. 

 

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥83.95 level and was capped around the ¥84.65 level.  The pair is poised to notch its fourth consecutive monthly loss as the yen ascends to levels not seen since mid-1995.  Traders remain underwhelmed with Bank of Japan Policy Board’s decision yesterday to expand its bank lending program by ¥10 trillion to ¥30 trillion.  The central bank capitulated to intense pressure from the Kan government to ease monetary policy further but most dealers do not believe the move will have any material impact on the economy or markets.  Former BoJ Policy Board member Nakahara said the central bank’s easing today is “too little and too late” and argued they are “meaningless and can’t stop the yen’s advance.”  Nakahara added “Lowering the policy rate to zero is a must to stem the yen’s gains.  The BoJ should also boost outright purchases of bonds by another ¥500 billion.  Increased bond purchases would enable the government to generate funds for more public works spending.  As a whole, Japan can’t live without spending by companies and the government.”  The three-month Tokyo interbank offered rate declined to 0.36308% overnight, its lowest level since 5 July 2006, but it remains to be seen if this decline stimulates new corporate borrowing.  The central bank also noted yesterday that downside economic risks may be increasing.  Vice finance minister Ikeda reported unsterilized intervention “would be effective” and said the central bank should adopt a rigid inflation target in the long-term.  Data released in Japan overnight saw August manufacturing PMI decline to 50.1 from the prior reading of 52.8.  July industrial production was up 0.3% m/m and 14.8% y/y while July retail trade was up 0.7% m/m and 3.9% y/y.  Also, July labour cash earnings were off 1.3% y/y and July housing starts were up 4.3% y/y.  Moreover, August small business confidence ticked higher to 48.4 and July construction orders were off 0.7% y/y.  The Nikkei 225 stock index lost 3.55% to close at ¥8,824.06.  U.S. dollar bids are cited around the ¥84.60 level.   The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥106.15 level and was capped around the ¥107.75 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥128.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.20 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8078 in the over-the-counter market, up from CNY 6.8033.  Data to be released in China overnight include August PMI manufacturing numbers followed by August PMI services data on Friday.  People’s Bank of China official Hu Xiaolian said additional yuan reform “will not have a key role in rebalancing bilateral trade between the U.S. and China.” Rumours that People’s Bank of China Governor Zhou defected have proven to be unfounded and likely evidence a power struggle within the Communist Party. 

 

 

 

£

 

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5325 level and was capped around the US$ 1.5475 level.  Data released in the U.K. today saw July net consumer credit print at £200 million, up from the prior reading of -£100 million, while July net lending secured on dwellings ticked higher to 48.7.  Also, the July M4 money supply was up 0.4% m/m and 2.3% y/y.  Data to be released in the U.K. tomorrow include August PMI manufacturing followed by August Nationwide house prices on Thursday along with PMI services data.  Bank of England Chief Economist Bean spoke at Jackson Hole this past weekend and said “The deleveraging process is incomplete, the recovery remains fragile, and a considerable margin of spare capacity is yet to be worked off, while further policy action may yet be necessary to keep the recovery on track.”  Bean also reported the central bank may impose policies to limit the ability of borrowers to take on riskier mortgage loans.  Cable bids are cited around the US$ 1.5115 level.  The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8285 level and was supported around the £0.8170 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0135 level and was capped around the CHF 1.0265 level.  Data released in Switzerland today saw the July UBS consumption indicator move higher to 1.860 from the revised prior reading of 1.795.  August PMI data will be released tomorrow followed by Q2 gross domestic product data on Thursday and August consumer price inflation data on Friday.   Swiss National Bank member Jordan yesterday said the central bank is closely monitoring the Swiss franc “very closely” and said Switzerland’s monetary policy situation remains “very complex.”  Jordan also cited a “small” short-term risk of deflation.   Some traders believe SNB may be forced to resume its franc-selling intervention to stop the euro’s sharp decline on the cross.  U.S. dollar offers are cited around the CHF 1.0980 level.  The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2875 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5550 level.

 

 

 

 

 

Technical Outlook at 1230 GMT (EDT + 0400)

 

 

             (Bid Price)       (Today’s Intraday Range)                            

           

EUR/ USD      1.2694                1.2742, 1.2624
USD/ JPY         84.13                  84.66,   83.93
GBP/ USD      1.5335                1.5474, 1.5326
USD/ CHF      1.0165                1.0263, 1.0134
AUD/USD       0.8905                0.8955, 0.8859
USD/CAD       1.0656                1.0668,
1.0574
NZD/USD       0.6973                0.7073, 0.6964
EUR/ JPY       106.83                107.76, 106.16
EUR/ GBP      0.8275                0.8287, 0.8169
GBP/ JPY        129.01                130.96, 128.80
CHF/ JPY          82.71                  83.18,   82.08

 

 

 

Support                       Resistance                  Support                    Resistance

 

EUR/ USD                                                           USD/ JPY

 

L1.       1.2575                         1.2870                            81.80                          87.15

L2.       1.2440                         1.3045                            80.80                          88.25
L3.       1.2220                         1.3290                            77.20                          89.45

 

   GBP/ USD                                                        USD/ CHF

 

L1.       1.5230                         1.5810                         1.0215                         1.0600

L2.       1.5010                         1.6040                         1.0095                         1.0820

L3.       1.4860                         1.6210                         0.9925                         1.1040

 

 AUD/ USD                                                        USD/ CAD

 

L1.       0.8645                         0.8965                         1.0450                         1.0860

L2.       0.8510                         0.9065                         1.0240                         1.1060

L3.       0.8345                         0.9220                         1.0005                         1.1490

 

 

 NZD/ USD                                                        EUR/ JPY

 

L1.       0.6910                         0.7220                         103.40                         108.90

L2.       0.6590                         0.7445                         101.15                         113.25

L3.       0.6265                         0.7585                           99.90                         118.05

 

  EUR/ GBP                                                       EUR/ CHF

 

L1.       0.7870                         0.8320                         1.2845                         1.3330

L2.       0.7785                         0.8535                         1.2650                         1.3615

L3.       0.7415                         0.8745                         1.2430                         1.3985

 

  GBP/ JPY                                                         CHF/ JPY

 

L1.       126.70                         135.35                           78.35                          82.65

L2.       123.30                         138.40                           76.45                          85.80

L3.       118.85                         140.70                           75.05                          87.15

 

 

 

 

 

SCHEDULE

 

 

Tuesday, 31August 2010

all times GMT

(last release in parentheses)

 

0130    Australia         July building approvals (-3.3% m/m)

0130    Australia         July building approvals (13.2% y/y)

0130    Australia         Q2 current account balance

0130    Australia         July private sector credit (0.2% m/m)

0130    Australia         July private sector credit (2.8% y/y)

0130    Australia         July retail sales (0.2% m/m)

0130    Japan               July labour cash earnings (1.5% y/y)

0500    Japan               July housing starts, annualized (750,000)

0500    Japan               July construction orders (-10.2% y/y)

0500    Japan               July housing starts (0.6% y/y)

0500    Japan               August small business confidence (48.1)

0600    CH                   July UBS consumption indicator (1.81)

0730    Italy                 August business confidence

0755    Germany         August unemployment, net change (-20,000)

0755    Germany         August unemployment rate (7.6%)

0800    Italy                 June retail sales

0830    UK                  July M4 money supply

0830    UK                  July mortgage approvals (47,600)

0830    UK                  July net consumer credit (-£100 million)

0830    UK                  July net lending secured on dwellings (£700 million)

0900    Italy                 August consumer price index

0900    Eurozone         August consumer price index, flash (1.7% y/y)

0900    Eurozonw        July unemployment rate (10.0%)

1230    Canada                        June gross domestic product (0.1% m/m)

1230    Canada                        Q2 gross domestic product, annualized (6.1%)

1300    US                   June Case-Shiller house prices (0.47% m/m)

1300    US                   June Case-Shiller house prices (4.61% y/y)

1345    US       

 

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