Wednesday October 6, 2010 - 15:22:07 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (6 October 2010)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3880
level and was supported around the $1.3800 figure. Group of Seven and Group of Twenty officials
will convene in Washington, D.C. late this week and weekend and are expected to
discuss exchange rate misalignments in significant detail given the recent
strength of the yen and euro and ongoing Chinese management of its yuan
exchange rate. Dealers are curious to
see if a communiqu√© will be released that will call on China to liberalize its
exchange rate policy further and call for less global intervention. Traders are focused on Friday‚Äôs release of
U.S. September non-farm payrolls data with zero gains forecast by many private economists
along with a possible uptick in the unemployment rate to 9.7%. As the U.S. creeps closer to mid-term
elections that could shift the balance of power in the U.S. Congress, the lack
of jobs creation in the U.S. remains the most significant economic development
in that country. Data released in the
U.S. today saw MBA mortgage applications decline 0.2%, an improvement from
their previous reading. Also, September
Challenger job cuts improved to -44.1% y/y while ADP September private
employment worsened to -39,000 from the revised August reading of 10,000. Data to be released in the U.S. tomorrow
include weekly initial jobless claims, continuing claims, and August consumer
credit. A dominant theme in the U.S.
remains the likelihood of additional credit easing policies by the Federal Open
Market Committee, perhaps as early as 3 November. Many traders believe the FOMC could announce
another expansion of its balance sheet by increasing its purchase of U.S.
Treasuries. In eurozone news, the European Central Bank‚Äôs interest rate
decision will be released tomorrow and it is unlikely that monetary policy will
be shifted. Market rumours suggest ECB
officials are split as to when they should exit monetary policy. Ratings agency Fitch cut Ireland‚Äôs debt rating
to A from AA- and noted Ireland has a negative outlook on account of
recapitalizing the Irish banking sector.
Eurozone data released today saw
Q2 gross domestic product come in as expected at +1.0% q/q and +1.9% y/y. Also,
German August factory orders were up 3.4% m/m and 20.3% y/y. Traders are largely dismissing increasing
sovereign credit problems in the eurozone.
Ireland is pledging additional cash for nationalized lender Anglo Irish
and yields on credit default swaps are at all-time highs on speculation of a
default by that bank. More than ‚ā¨34
billion has been pledged or paid to support the troubled lender since the
beginning of 2009, by far the largest bank bailout in the eurozone to
date. Euro bids are cited around
the US$ 1.3670 level.
The yen appreciated
vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•82.75
level and was capped around the ¬•83.25 level. Bank of Japan released its monthly report
today in which is noted Japan‚Äôs economic recovery is decelerating with exports
and industrial production slowing. Bank
of Japan surprised the markets yesterday with a reduction in its benchmark
overnight call rate to a range of 0% to 0.1% and the announcement of a new ¬•5
trillion fund to purchase assets. Many
dealers are speculating other central banks including the Fed will follow the
BoJ in expanding policy further. The
expansion of the BoJ‚Äôs balance sheet is also designed to combat deflation
though some economists believe the policy expansion will not result in an
increase in final private demand. BoJ
Governor Shirkawa hailed the new policy as ‚Äúcomprehensive monetary easing.‚ÄĚ Future policy moves could involve a change in
the return paid on banks‚Äô excess reserves held at the central bank or an
expansion of its monthly JGB-buying program.
Yields on the benchmark 10-year JGB reached their lowest level since
July 2003 at 0.84%. BoJ September
official reserves data will be released overnight. Traders are curious to see if upcoming G-7
and G-20 meetings result in criticism of Japan regarding its recent yen-selling
intervention. The Nikkei 225 stock index
climbed 1.81% to close at ¬•9.691.43. U.S.
dollar bids are cited around the ¬•84.60 level.
The euro moved lower vis-√†-vis the yen as the single currency tested
bids around the ¬•114.65 level and was capped around the ¬•115.25 level. The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•131.40 level while the Swiss franc moved
lower vis-√†-vis the yen and tested bids around the ¬•85.75 level. In Chinese news, the U.S. dollar depreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.6805 in the
over-the-counter market, down from CNY 6.6905. People‚Äôs Bank of Governor Zhou yesterday
dismissed talk that European Union officials are pressuring China to weaken the
yuan. Traders will pay close attention to
meetings to be held in Washington, D.C. later this week.
British pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.5840 level and was capped around the US$ 1.5940 level. Bank of England‚Äôs Monetary Policy Committee
will announce its interest rate decision tomorrow. Some traders believe the MPC could follow
Bank of Japan‚Äôs lead and expand its quantitative easing policies further, possibly
by increasing its bond purchase program from its current ¬£200 billion
level. There is certainly more overt
pressure on BoE to ease further than normally precedes MPC meetings. MPC member Posen last week reiterated the BoE
should expand its purchase of assets.
U.K. consumer price inflation rates remain significantly above target
and are limiting the central bank‚Äôs ability to raise interest rates. Former BoE Deputy Governor Gieve this week
reported ‚Äúthe likelihood is 70-30 that we will see a continuing recovery and
that will warrant a normalisation over the next two years.‚ÄĚ Cable bids are
cited around the US$ 1.5645 level. The euro appreciated vis-√†-vis the
British pound as the single currency tested offers around the ¬£0.8740 level and
was supported around the ¬£0.8685 level.
franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids
around the CHF 0.9620 level and was capped around the CHF 0.9685 level. The
pair has traded below parity since 21 September in the wake of widespread U.S.
dollar weakness. It was reported that
Swiss foreign currency reserves fell to CHF 215.3 billion in September from the
previous total of CHF 218.0 billion. Data
released in Switzerland yesterday saw September consumer price inflation up
0.0% m/m and 0.3% y/y, in-line with expectations. September unemployment data will be released
on Friday. Swiss National Bank member
Jordan this week called for more ‚Äúmacro-prudential‚ÄĚ regulation and speculated
new banking rules will increase GDP growth by 1% to 2% over the long-term. A Swiss government panel this week recommended
that UBS and Credit Suisse hold total capital equal to at least 19% of their
assets, far above the 10.5% proposed requirements under Basel III. U.S. dollar
offers are cited around the CHF 0.9925 level.
The euro depreciated
vis-√†-vis the Swiss franc as the single currency tested bids around the CHF 1.3320
level while the British pound moved lower
vis-√†-vis the Swiss franc and tested bids around the CHF 1.5250 level.
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