Monday September 17, 2007 - 16:37:15 GMT
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Forex and Commodity Market Commentary and Analysis (17 September 2007)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3850 level and was capped around the $1.3885 level. Today‚Äôs range was quite thin as traders were loath to establish new ranges ahead of tomorrow‚Äôs Federal Open Market Committee interest rate decision. Most traders expect the Fed will reduce the federal funds target rate by +25bps or +50bps on account of the recent turmoil in the financial markets that was precipitated by the subprime mortgage credit shakeout. U.S. Treasury Secretary Paulson reiterated the ongoing repricing of risk in the credit market ‚Äúwill be with us for a while‚ÄĚ but that the U.S. is doing so ‚Äúagainst a backdrop of a strong global economy.‚ÄĚ Data released in the U.K. today saw the September Empire State manufacturing index fall to 14.7, far below its reading of 25.1 in August. In eurozone news, European Central Bank officials continued to defend their policymaking activities from ongoing criticism from French President Sarkozy. ECB member Liebscher reiterated inflationary risks are on the upside. The German government reported Germany‚Äôs jobless total could fall to 3.5 million this month or next month. It was also reported that the EMU-13 July trade surplus printed at ‚ā¨4.6 billion from a revised ‚ā¨7.6 billion in June. Euro bids are cited around the US$ 1.3620 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•114.65 level and was capped around the ¬•115.35 level. Technically, today‚Äôs intraday low was just above the 23.6% retracement of the move from ¬•124.15 to ¬•111.60. Japanese financial markets were closed for a market holiday overnight and will reopen tomorrow. All eyes are on the Japanese political landscape where a majority of lawmakers from the ruling Liberal Democratic Party are said to support the moderate Yasuo Fukuda in next Sunday‚Äôs party presidential election over challenger Taro Aso. The big question on traders‚Äô minds is how a win by either candidate would impact Japan‚Äôs national finances and how the yen may react. Most traders believe Bank of Japan will push forth a +25bps hike in the overnight call rate before the end of the current fiscal year in March 2008, also around the time that BoJ Governor Fukui leaves office. Dollar bids are cited around the ¬•113.70 level. The euro came off vis-√†-vis the yen as the single currency tested bids around the ¬•159.00 figure and was capped around the ¬•160.15 level. The British pound and Swiss franc weakened vis-√†-vis the yen as the crosses tested bids around the ¬•229.05 and ¬•96.60 levels, respectively. The Chinese yuan came off vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5227 in the over-the-counter market, up from CNY 7.5175.
The British pound sold off significantly vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 1.9915 level and was capped around the $2.0090 level. Technically, today‚Äôs intraday low was right around the 50% retracement of the move from $1.9180 to $2.0655. Traders are driving sterling lower on account of ongoing problems at U.K. bank Northern Rock where customers withdrew sizable amounts of deposits over the weekend. Northern Rock is the U.K.‚Äôs fifth-largest home lender and received emergency funding from the Bank of England last week. Short sterling futures are now pricing in a reduction in Bank of England‚Äôs repo rate over the coming months, a stark contrast to just a few weeks ago when traders believed the MPC would lift the repo rate by +25bps to 6.00% by the end of the year. Traders await this month‚Äôs MPC meeting minutes followed by testimony from Bank of England Governor King on Thursday. The problems being faced in the U.K. money market are exemplified by the spike in short-term funding costs. The overnight sterling deposit rate jumped to 6.47% from 5.87% and the one-week rate climbed to 6.21% from 5.98%. These increases reflect the premiums being paid by financial institutions looking to secure funds in the money market. Cable bids are cited around the US$ 1.9920 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.6955 level and was supported around the ‚ā§0.6905 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1845 level and was capped around the CHF 1.1900 figure. Technically, today‚Äôs intraday high was right around the 23.6% retracement of the move from CHF 1.2215 to CHF 1.1800. Q2 industrial production data will be released in tomorrow. Dollar offers are cited around the CHF 1.1960 level. The euro and British pound lost ground vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.6440 and CHF 2.3645 levels, respectively.
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