Thursday July 26, 2007 - 15:22:57 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (26 July 2007)
The euro gained marginal ground vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3740 level and was supported around the $1.3690 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from $1.3565 to $1.3850. Today‚Äôs range was relatively limited as traders continue to digest a variety of factors, not the least of which is the ongoing correction in the U.S. credit markets. Subprime mortgage industry problems continue to worsen and risk aversion is growing. Many traders believe the reassessment and repricing of credit risk will actually strengthen the U.S. dollar as traders will reduce emerging market exposure and exposure in foreign markets in favour of more highly-rated assets such as U.S. Treasuries. In recent weeks, the yield on the 10-year U.S. Treasury Note has fallen from 5.31% to 4.83%, evidence that market participants are reinvesting in assets with higher credit ratings. Interestingly, the U.S. dollar‚Äôs recent gains have coincided with a growing perception the subprime mortgage problems may force the Federal Reserve to lower interest rates this year. Data released in the U.S. today saw June new home sales off 6.6% to an annualized 834,000 units, weaker-than-expected. The Fed‚Äôs Beige Book was released yesterday and reported consumer prices continue to expand ‚Äúat a moderate rate.‚ÄĚ The Federal Open Market Committee will next deliberate interest rates on 7 August. Other data released today saw weekly initial jobless claims fall 2,000 to 301,000 while continuing jobless claims were off 19,000 to 2.55 million. Additionally, new orders for durable goods were up 1.4% m/m after declining a revised 2.3% in May. Excluding transportation goods, durable goods orders were off 0.5% and non-defense capital goods orders excluding aircraft orders were off 0.7% after falling 1.5% in May. It was also reported that June building permits were revised to -7.0% from -7.5%. In eurozone news, the German July Info business climate index fell to 106.4 from 107.0 in June while the EMU-13 M3 money supply was up 10.9% in June from 10.6% in May. These data suggest the European Central Bank may be inclined to raise its refinancing rate by +25bps to 4.25% in September followed by another +25bps hike to 4.50% by the end of 2007. Euro bids are cited around the US$ 1.3635 level.
The yen appreciated sharply vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•119.10 level and was capped around the ¬•120.75 level. Technically, today‚Äôs intraday high was right around the 38.2% retracement of the move from ¬•115.15 to ¬•124.15. Worsening conditions in the U.S. credit markets are causing some Japanese accounts to repatriate assets and this is leading to an unwinding of some short yen carry trades. The pair has not been this weak since 1 May. Data released in Japan today saw the June corporate services price index rise +0.1% m/m and 1.4% y/y, the seventh consecutive monthly increase. Also, foreign investors were net buyers of Japanese equities for the fourth consecutive week. The Nikkei 225 stock index lost 0.88% to close at ¬•17,702.09. Dollar bids are cited around the ¬•118.55 level. The euro slumped vis-√†-vis the yen as the single currency tested bids around the ¬•163.50 level and was capped around the ¬•165.50 level. The British pound and Swiss franc came off vis-√†-vis the yen as the crosses tested bids around the ¬•243.65 and ¬•98.60 levels, respectively. The Chinese yuan depreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5655 in the over-the-counter market, up from CNY 7.5581. China‚Äôs Politburo reported it will ‚Äúprevent general price levels from rising too quickly‚ÄĚ and added ‚Äúthe appropriately stable monetary policy should be moderately tightened.‚ÄĚ
The British pound weakened vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 2.0425 level and was capped around the $2.0540 level. Technically, today‚Äôs intraday low was right around the 38.2% retracement of the move from $2.0055 to $2.0655. Data released in the U.K. today saw Nationwide‚Äôs house price inflation measure ease to 9.9% y/y in July from 11.1% y/y in June, below forecasts and a fifteen-month low. These data suggest Bank of England‚Äôs continued monetary tightenings are slowing the growth in the U.K. housing sector. Likewise, BBA reported that June mortgage approvals fell. Cable bids are cited around the US$ 2.0355 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6710 level and was supported around the ‚ā§0.6680 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2065 level and was capped around the CHF 1.2150 level. Technically, today‚Äôs intraday high was just below the 38.2% retracement of the move from CHF 1.2470 to CHF 1.1960. Traders await the release of the KOF leading indicator tomorrow. Dollar offers are cited around the CHF 1.2215 level. The euro and British pound came off vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.6570 and CHF 2.4680 levels, respectively.
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