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Thursday October 21, 2010 - 01:03:34 GMT
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FX Market Commentary and Analysis (20 October 2010)

The euro appreciated sharply vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3990 level and was supported around the $1.3695 level.  Technically, today’s intraday high was just above the 61.8% retracement of the $1.4160 – 1.3695 range.  The pair’s ascent started during the Asian session and European and North American dealers followed suit but were unable to push the pair through the psychologically-important US$ 1.4000 figure.  Data released in the U.S. today saw mortgage approvals reverse course and decline 10.5% in the latest week and data to be released tomorrow include weekly initial jobless claims, continuing claims, September leading indicators, and the October Philadelphia Fed index.  The Federal Reserve released its monthly Beige Book today in which it reported the economy expanded at a “modest pace” in September and early October.  Richmond Fed President Lacker said economic growth remains in line with his outlook and said additional asset purchases by the Fed “would be a hard case to make.”  Similarly, Philadelphia Fed President Plosser reported “I am less inclined to want to follow a policy that is highly concentrated on raising inflation and raising inflation expectations,” adding he is “less concerned about deflation risks than some of my colleagues.”  Plosser added unemployment is unlikely to be influenced significantly by monetary policy.  Additionally, Plosser said the dollar may depreciate if inflation in the U.S. picks up. Lacker said the dollar is responding to “shifting expectations.”  In eurozone news, German data released today saw September producer prices climb 0.3% m/m and 3.9% y/y.  All eyes are on the Group of Twenty meeting of central bankers and finance ministers in South Korea this weekend.  European Central Bank member Stark intimated a rate hike could be in the cards earlier than expected.  Euro bids are cited around the US$ 1.3670 level. 

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥80.85 level and was capped around the ¥81.65 level.  Dealers took the pair lower one day after the greenback won a global reprieve from traders in response to Bank of China’s surprise interest rate move.  The pair failed to move below the ¥80.80 level again today, the same area where the dollar found support last week.  Most dealers believe it is only a matter of time before the pair trades below the psychologically-important ¥80 figure.  Bank of Japan Governor Nishimura verbally intervened verbally intervened, saying “The fact that the recent yen appreciation is causing a deterioration of business sentiment is a big factor in putting downward pressure on economic activity.  There is a risk that the yen’s appreciation will lower consumer prices not only through worsening economic activity but also through changes in import prices.”  Data released in Japan overnight saw the August coincident index decline to 103.3 while the August leading index moved higher to 99.5.  Also, September convenience store sales were up 12.9% y/y.  The Nikkei 225 stock index gained 0.43% to close at ¥9,539.45.  U.S. dollar bids are cited around the ¥84.60 level.   The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥111.55 level and was capped around the ¥113.35 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥128.75 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥84.60 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.6526 in the over-the-counter market, up from CNY 6.6446.  Yesterday, People’s Bank of China shocked the markets by raising its benchmark one-year lending rate to 5.56% from 5.31% and its deposit rate to 2.5% from 2.25%, its first rate hike since 2007.  Policymakers are clearly trying to reduce China’s asset bubble and reduce lending but there’s a risk that higher interest rates will actually exacerbate the situation by encouraging more inflows.  China continues to struggle absorbing liquidity from last year’s CNY 9.59 trillion credit expansion. 

£

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5875 level and was supported around the US$ 1.5650 level.  Technically, today’s intraday low was right around the 50% retracement of the $1.6000 - $1.5295 level.  Data released in the U.K. today saw the September public sector net cash requirement print at £20.7 billion while September public sector net borrowing increased to £15.6 billion.  Also, the September M4 money supply was off 0.3% m/m and up 0.9% y/y.  Bank of England Monetary Policy Committee member Weale said second half economic growth is likely to decelerate but added it will not necessarily result in a double-dip recession.  Minutes from the MPC’s October meeting were released today and they reported “Some of the members felt the likelihood that further monetary stimulus would become necessary in order to meet the inflation target in the medium term had increased in recent months.  MPC member Posen requested additional bond purchases and MPC member Sentance voted for an interest rate increase.  Cable bids are cited around the US$ 1.5645 level.  The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8820 level and was supported around the £0.8740 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9570 level and was capped around the CHF 0.9715 level.  Some investment banks are reporting the Swiss franc’s price activity is reacting more to Swiss National Bank’s inflation forecasts than the central bank’s CHF 171 billion in interventions.  Last week, Swiss banking giant UBS predicted Swiss National Bank will begin lifting its benchmark interest rate in Q1 2011.  SNB Chairman Hildebrand last week reported “One of the biggest challenges for the global economy is the reduction of imbalances.  It is very important that this adjustment process happens in a cooperative way.  It shouldn’t happen through currency wars.  We should avoid using protectionist instruments to achieve this goal.”  Hildebrand added the risk of deflation in Switzerland was averted in June.  U.S. dollar offers are cited around the CHF 0.9925 level.  The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3430 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5225 level.

 

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Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

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Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



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