Tuesday September 25, 2007 - 15:21:35 GMT
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Forex and Commodity Market Commentary and Analysis (25 September 2007)
The euro extended recent gains vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4155 level and was supported around the $1.4060 level. Traders continue to speculate the Federal Open Market Committee will expand monetary policy further next month with federal funds futures pricing in a 90% chance the Fed will lower the federal funds target rate another 25bps at the October FOMC meeting. The likelihood of a Fed move as discounted by the federal funds futures market was 72% before the release of U.S. economic data today that saw September consumer confidence print at 99.8, down from 105.6 in August and weaker-than-expected. Also, August existing home sales were down 4.3% to an annualized 5.5 million units level from -0.2% in July, the latest evidence that the credit market contraction has had a significant impact on the U.S. housing sector. Other data released in the U.S. today saw Redbook retail sales up +0.5% m/m in the first three weeks of September while the September Richmond Fed manufacturing index improved to +14 from +7 in August. In eurozone news, the German Ifo September business climate index declined for the fourth consecutive month, rolling back to 104.2 from 105.8 in August. The series has been weak recently and these data will only reinforce the view that the European Central Bank is likely to move to a neutral or easing bias and possibly expand monetary policy in the near future. European Central Bank member Garganas was fairly hawkish in remarks today saying ‚Äúthe upside risks to inflation dominate any effects stemming from the appreciation of the euro.‚ÄĚ Other data released in the eurozone today saw the August import price index off 0.7% m/m and off 0.6% y/y. Euro bids are cited around the US$ 1.4030 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•114.00 figure and was capped around the ¬•114.95 level. As expected, Yasuo Fukuda was named the new Prime Minister of Japan overnight and traders are curious to see how his government will pursue economic and financial reforms. Furthermore, dealers want to know who will be appointed to key posts in the Ministry of Finance and what Fukuda‚Äôs attitude towards the yen will be. Any indication that Fukuda‚Äôs government may pressure Bank of Japan to not raising rates will likely forestall the unwinding of the short yen carry trade. Minutes were released from BoJ‚Äôs Policy Board meeting last month and suggested policymakers did not raise the overnight call rate on account of instability in global financial markets. Rate-setters have made it clear they plan to lift rates ‚Äúgradually‚ÄĚ and the big question on traders‚Äô minds is when the overnight call rate will be lifted by 25bps to +0.75%. Data released in Japan overnight saw August supermarket sales off 0.5% m/m, the twentieth consecutive monthly decline. Also, the August corporate services price index was off 0.5% m/m and up 1.0% y/y. Dollar bids are cited around the ¬•112.55 level. The euro moved higher vis-√†-vis the yen as the single currency tested offers around the ¬•161.95 level and was supported around the ¬•161.00 figure. The British pound weakened vis-√†-vis the yen as sterling tested bids around the ¬•229.75 level while the Swiss franc gained ground vis-√†-vis the yen as the pair tested offers around the ¬•98.20 level. The Chinese yuan lost marginal ground vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5112 in the over-the-counter market, up from CNY 7.5106.
The British came off vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 2.0085 level and was capped around the $2.0230 level. Technically, today‚Äôs intraday low was right around the 38.2% retracement of the move from $1.9180 to $2.0655. Cable came off after The Independent reported the U.K.‚Äôs bank deposit protection scheme has funds of only ‚ā§4.4 billion, suggesting the Bank of England and government could have a problem on their hands if the panicked withdrawals from Northern Rock PLC spreads to other financial institutions. Data released in the U.K. today saw Q2 business investment revised to 0.4% from 0.8%. The International Monetary Fund reported the sub-prime mortgage crisis that has roiled U.S. markets could result in similar problems in the U.K. Bank of England Monetary Policy Committee member Sentance yesterday indicated the problems in the financial markets could reduce demand and lower inflation. Liquidity conditions improved overnight as the three-month LIBOR rate fell to 6.34% from 6.36% and the overnight fixing fell to 5.73% from 5.80%. Cable bids are cited around the US$ 2.0090 level. The euro moved higher vis-√†-vis the British pound as the single currency tested offers around the ‚ā§0.7015 level and was supported around the ‚ā§0.6960 level.
The Swiss franc appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1635 level and was capped around the CHF 1.1745 level. The pair reached its lowest level since March 2005. Data released in Switzerland today saw the August private consumption index fall to 1.93 from 2.26 in July. U.S. dollar offers are cited around the CHF 1.1760 level. The euro and British pound came off vis-√†-vis the Swiss franc as the crosses tested bids around the CHF 1.6470 and CHF 2.3505 levels, respectively.
The Australian dollar gained marginal ground vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 8700 figure and was supported around the $0.8610 level. Australian dollar bids are cited around the US$ 0.8585 level. The New Zealand dollar came off vis-√†-vis the U.S. dollar as the kiwi tested bids around the US$ 0.7305 level and was capped around the $0.7475 level.
The Canadian dollar appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 0.9995 level and was capped around the C$ 1.0065 level. Traders await remarks from Bank of Canada Governor Dodge later in the North American session. U.S. dollar offers are cited around the C$ 1.0090 level.
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