Monday August 20, 2007 - 17:53:40 GMT
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Forex and Commodity Market Commentary and Analysis (20 August 2007)
The euro lost marginal ground vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3460 level and was capped around the $1.3505 level. The common currency consolidated some of Friday‚Äôs strong gains that materialized after the Federal Reserve cut the discount rate by 50bps to address the ongoing global credit glut. Most traders now believe the Federal Open Market Committee will lower the federal funds target rate by 25bps or 50bps no later than 18 September when policymakers next deliberate monetary policy. There remains a firm possibility the Fed could react to the ongoing liquidity situation that has panicked the financial markets by moving rates lower in an intermeeting move. The Fed injected US$ 3.5 billion into the financial markets today through overnight repurchase agreements. One criticism of the Fed‚Äôs continued liquidity injections is that they are failing to reach the targets who need them most, specifically those seeking mortgages and those with mortgages they may not be able to afford. Data released in the U.S. today saw the July index of leading economic indicators rose 0.4% after falling 0.3% in June. Other data released today saw the Chicago Fed index turn negative in July. In eurozone news, French industrial orders eased 0.2% m/m in June. Bundesbank reported the European Central Bank‚Äôs monetary policy still ‚Äútends to be expansively oriented‚ÄĚ despite its last monetary tightening in June. Many traders believe the ECB will delay its next expected monetary tightening from next month. Euro bids are cited around the US$ 1.3400 figure.
The yen weakened vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•115.50 level and was supported around the ¬•113.65 level. Bank of Japan injected ¬•1 trillion into the money markets today to counter the rise in short-term interest rates. Jiji reported the BoJ‚Äôs Policy Board is unlikely to lift the overnight call rate by +25bps to +0.75% this week on account of ongoing problems in the global economy regarding asset prices and the repricing of risk. Most traders now believe the BoJ will raise rates one time before the end of the year by +25bps. The Nikkei 225 stock index gained 3.00% to close at ¬•15,732.48. Dollar bids are cited around the ¬•112.00 figure. The euro moved lower vis-√†-vis the yen as the single currency tested bids around the ¬•153.35 level and was capped around the ¬•155.95 level. The British pound and Swiss franc moved higher vis-√†-vis the yen as the crosses tested offers around the ¬•229.55 and ¬•95.70 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5871 in the over-the-counter market, down from CNY 7.5951. People‚Äôs Bank of China announced it has permissioned trading in yuan swaps. PBOC advisor Fan Gang announced yuan appreciate of 3% to 5% per year would suffice over three-to-five years.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 1.9900 figure and was supported around the $1.9765 level. Sterling moved higher after data were released that saw the M4 money supply expand 1.0% m/m and 13.0% y/y in July. These data suggest Bank of England‚Äôs Monetary Policy Committee will still move forward with a +25bps monetary tightening before the end of the year despite the global liquidity situation. Other data released in the U.K. today saw public sector net cash borrowing print at -‚ā§6.5 billion, the largest July surplus since 1994. Also, BBA and CML reported strong mortgage lending results for July while BSA reported soft results. Rightmove reported that U.K. house prices were up 0.6% m/m and 12.8% y/y in August. Cable bids are cited around the US$ 1.9530 level. The euro lost marginal ground vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6780 level and was capped around the ‚ā§0.6825 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2050 level and was capped around the CHF 1.2090 level. Today‚Äôs range was quite limited as traders pondered the market‚Äôs next moves following last week‚Äôs volatile trading activity. Swiss National Bank President Roth reported ‚ÄúThe information we currently have show a rather positive picture‚ÄĚ regarding the prospects for the Swiss economy in the wake of the global liquidity crisis but added the economy could ‚Äúslow down somewhat in the second half of the year.‚ÄĚ Data released in Switzerland today saw the July producer price index up 0.1% m/m and 2.8% y/y. Dollar offers are cited around the CHF 1.2140 level. The euro and British pound moved lower vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.6230 and CHF 2.3825 levels, respectively.
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