Monday July 30, 2007 - 16:16:04 GMT
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Forex and Commodity Market Commentary and Analysis (30 July 2007)
The euro moved higher vis-Ă -vis the U.S. dollar today as the single currency tested offers around the US$ 1.3690 level and was supported around the $1.3610 level. The common currency reached its lowest level since 10 July during Australasian dealing and reclaimed some of the ground it lost last week. Todayâ€™s trading activity represents a welcome reprieve for the euro after last weekâ€™s 200 pip+ sell-off. The greenback gained ground last week after the subprime mortgage market meltdown spread to other asset classes. There is now anecdotal evidence that the repricing of risk has moved to higher-rated asset classes such as the corporate bond market and that the reassessment of risk in credit markets is spreading to other countries. The U.S. Treasury market and the U.S. dollar have been beneficiaries of the credit market shakeout. June PCE data will be closely scrutinized tomorrow. In eurozone news, German June wholesale sales were up 0.1% m/m and 0.2% y/y. Many EMU-13 data will be released tomorrow. Euro bids are cited around the US$ 1.3555 level.
The yen appreciated marginally vis-Ă -vis the U.S. dollar today as the greenback tested bids around the ÂĄ118.00 figure and was capped around the ÂĄ119.05 level. The pairâ€™s intraday low was right around Fridayâ€™s intraday low and that level is the pairâ€™s weakest showing since 19 April. As expected, the ruling Liberal Democratic Party lost yesterdayâ€™s Upper House elections, a historic setback that potentially sidelines the reform agenda of Prime Minster Abe who has vowed to not resign from office despite the LDPâ€™s loss. The LDPâ€™s defeat also calls into question Bank of Japanâ€™s possible interest rate hike next month. The BoJ is widely expected to lift the overnight call rate by +25bps to +0.75% as early as next month but the LDPâ€™s loss plus recent deflationary data could delay the BoJ Policy Boardâ€™s decision to hike. Data released in Japan today saw June industrial output up 1.2% m/m and 1.0% y/y. There is evidence that the U.S. subprime mortgage meltdown has migrated to other countries including Canada and the United Kingdom and the yen could remain supported by these developments as traders unwind short yen carry trades. The Nikkei 225 stock index gained 0.03% to close at ÂĄ17,289.30. Dollar bids are cited around the ÂĄ117.25 level. The euro moved higher vis-Ă -vis the yen as the single currency tested offers around the ÂĄ162.65 level and was supported around the ÂĄ160.65 level. The British pound came off marginally vis-Ă -vis the yen as sterling tested bids around the ÂĄ238.30 level while the Swiss franc moved higher vis-Ă -vis the yen and tested offers around the ÂĄ98.80 level. In Chinese news, the yuanâ€™s central parity rate vis-Ă -vis the U.S. dollar was set at CNY 7.5824 per U.S. dollar, up from CNY 7.5697. Peopleâ€™s Bank of China tightened monetary policy over the weekend, lifting reserve requirements by +0.5% to 12.0%. U.S. Treasury Secretary Paulson is meeting with Chinese officials in Beijing now and reported â€śThe (yuan) is a symbol of economic reform But don't forget that even if the currency were trading exactly where it should based on economic fundamentals, there would still be large imbalances. We are talking about structural economic change and that can't be mandated.â€ť Paulson added â€śThe rate of appreciation has gone up considerably over the last year and the renminbi has now appreciated well over 9 per cent,â€ť adding he is seeking â€śmore, and much more.â€ť
The British pound came off marginally vis-Ă -vis the U.S. dollar today as cable tested bids around the US$ 2.0180 level and was capped around the $2.0290 level. Data released in the U.K. today saw net mortgage lending increase in June after decline for three consecutive months, up â‚¤9.6 billion from Mayâ€™s â‚¤8.8 billion level. Also, the number of mortgage approvals remained steady at 114,000. Also, June net lending to individuals rose to â‚¤10.4 billion from â‚¤9.6 billion in May and the final June M4 money supply was revised down to 12.9% from 13.0%. Other data released today saw Hometrack house prices in England and Wales at a near standstill in July. Cable bids are cited around the US$ 2.0140 level. The euro moved higher vis-Ă -vis the British pound as the single currency tested offers around the â‚¤0.6760 level and was supported around the â‚¤0.6730 level.
The Swiss franc appreciated vis-Ă -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2005 level and was capped around the CHF 1.2100 figure. The June UBS consumption indicator will be released tomorrow. Dollar offers are cited around the CHF 1.2155 level. The euro and British pound moved lower vis-Ă -vis the Swiss franc as the crosses tested bids around the CHF 1.6410 and CHF 2.4300 levels, respectively.
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