Thursday August 23, 2007 - 16:25:15 GMT
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Forex and Commodity Market Commentary and Analysis (23 August 2007)
The euro strengthened vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3585 level and was supported around the $1.3535 level. Technically, today‚Äôs intraday low was right around the 23.6% retracement of the move from $1.2480 to $1.3850. The common currency gained ground on a surprise statement from the European Central Bank that affirmed its monetary policy stance has not changed since earlier in August. At that time, ECB President Trichet affirmed expectations that the main refinancing rate would rise +25bps to +4.25% - a move that was then seen as taking place in September. In contrast, many traders believe the Federal Reserve will cut the federal funds target rate by as much as 50bps on or before 18 September. The Fed injected US$ 6.5 billion of liquidity today. Data released in the U.S. today saw weekly initial jobless claims fall 2,000 to 322,000 while continuing jobless claims were up 16,000 to 2.572 million. In other eurozone news, the Belgian business confidence index fell to 3.3 in August from 4.2 in July. Also, German Q2 final GDP expanded 0.3, down from 0.5% in Q1. Euro bids are cited around the US$ 1.3475 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•117.10 level and was supported around the ¬•115.30 level. The pair reached its strongest level since 15 August after Bank of Japan‚Äôs Policy Board voted 8-to-1 to keep the overnight call rate unchanged at 0.50% for the seventh consecutive meeting. Most traders had expected the BoJ to keep rates unchanged on account of the recent global liquidity crisis and now see a +25bps hike to +0.75% in September as the most likely policy course. The BoJ also kept its monthly assessment of the economy unchanged. BoJ Governor Fukui reported ‚ÄúEconomic data that has been released since the last policy board meeting confirms the steady expansion of the Japanese economy, but because global financial markets have turned highly volatile, we found it necessary to gather more information on developments in the financial and credit markets. By assessing the feasibility of our standard economic scenario and risks, we will make an appropriate policy decision. I understand that global credit markets are now in the process of re-pricing risk, and we need to see if the current re-pricing proceeds in an orderly fashion, or if it develops in a disorderly manner. The US economy, while losing some momentum as the housing market continues to undergo a correction, is generally perceived to be able to (eventually) return to its potential growth pace, But we need to see if the credit market woes will affect housing investment and corporate finances, as well as how the recent financial market turmoil affects corporate and consumer confidence. The US subprime loans problem has not damaged the Japanese banking system and will not shake it going forward.‚ÄĚ The Nikkei 225 stock index gained 2.61% to close at ¬•16,316.32. Dollar bids are cited around the ¬•114.55 level. The euro appreciated vis-√†-vis the yen as the single currency tested offers around the ¬•159.10 level and was supported around the ¬•156.15 level. The British pound and Swiss franc moved higher vis-√†-vis the yen as the crosses tested offers around the ¬•234.90 and ¬•96.95 levels, respectively. The Chinese yuan appreciated vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5870 in the over-the-counter market, down from CNY 7.6000.
The British pound expanded sharply vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 2.0090 level and was supported around the $1.9915 level. Technically, today‚Äôs intraday high and low were right around the 38.2% and 50.0% retracements of the move from $1.9180 to $2.0655 level, respectively. Data released in the U.K. today saw Q2 provisional business investment up 0.8% q/q and 7.4% y/y. Most traders expect Bank of England‚Äôs Monetary Policy Committee will tighten monetary policy by +25bps to 6.00% by the end of the year. Cable bids are cited around the US$ 1.9810 level. The euro came off vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6755 level and was capped around the $0.6800 figure.
The Swiss franc came off marginally vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2105 level and was supported around the CHF 1.2050 level. Data released in Switzerland today saw the ZEW economic expectations indicator recede to -5.1 in August from -2.1 in July. Dollar offers are cited around the CHF 1.2140 level. The euro and British pound appreciated vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6420 and CHF 2.4285 levels, respectively.
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