Friday September 28, 2007 - 16:28:42 GMT
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GCI Financial - www.gcitrading.com
Forex and Commodity Market Commentary and Analysis (28 September 2007)
The euro appreciated vis-√†-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4205 level and was supported around the $1.4145 level. The common currency established a new lifetime high as traders became increasingly convinced the Federal Reserve will have to expand monetary policy further. The Federal Open Market Committee next convenes on 30-31 October and is expected to reduce the federal funds target rate by another 25bps at that meeting or in December. Traders, however, now believe the Fed‚Äôs current easing cycle may last longer than previously expected on account of very weak U.S. housing data that continue to be released. Data released in the U.S. today saw August core personal consumption expenditures fall to 1.8% from 1.9%, the latest evidence that price pressures moderated in Q3. Also, August personal incomes were up 0.3% while personal spending was up 0.6%. The Fed‚Äôs concern over the beleaguered U.S. housing market has been well-chronicled and their main focus is whether or not the housing recession negatively impacts consumer spending, particularly around the upcoming U.S. holiday shopping period. Other data released in the U.S. today saw the final September University of Michigan consumer sentiment index steady at 83.4 while the Chicago NAPM business index improved to 54.2 from 53.8 in August. Notably the prices paid index fell sharply to 59.0 in September from 71.8 in August. In eurozone news, the European Commission‚Äôs September EMU-13 economic sentiment indicator fell to 107.1 from 110.0 in August, the fourth consecutive monthly decline. One major impetus for the stronger euro today was a stronger-than-expected provisional eurozone September harmonized consumer price inflation index of 2.1%, way above August‚Äôs 1.7% reading. These data are above the European Central Bank‚Äôs 2.0% ceiling target and will likely keep pressure on the ECB to maintain a tightening bias. Some traders believe the ECB will move to an easing bias as a reaction to the Fed‚Äôs latest rate cut but these data render it clear the ECB will likely maintain its hawkish bias or move to a neutral outlook. Other data released in the eurozone today saw French Q2 GDP up 0.3% q/q while French August PPI was up 0.2% m/m. Also, German retail sales were off 1.4% m/m and 2.2% y/y. Euro bids are cited around the US$ 1.4120 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the ¬•114.90 level and was capped around the ¬•115.65 level. Traders await Monday‚Äôs Bank of Japan quarterly tankan survey to evaluate sentiment among large manufacturers and non-manufacturers and to assess capital spending plans by large Japanese firms. Most traders believe business sentiment among large manufacturers likely fell in Q3 with profit forecasts likely to be downwardly revised to the end of the current fiscal year in March 2008. Many data were released in Japan overnight. First, the core CPI level was off 0.1% y/y with overall CPI off 0.2% y/y. These data are the latest evidence that deflationary pressures have not completely subsided from the Japanese economy. Second, the August unemployment rate printed at 3.8% from 3.6% in July on account of job losses in the service sector. Third, August industrial production was up 3.4% m/m, the first improvement in two months. Fourth, August housing starts were off 43.3% y/y, more-than-expected. Fifth, August orders received by the 50 largest contractors were off 14.2% y/y. Sixth, August household spending expanded more-than-expected and was up 1.6% y/y. The Nikkei 225 stock index lost 0.28% to close at ¬•16,785.69. Dollar bids are cited around the ¬•114.55 level. The euro weakened vis-√†-vis the yen as the single currency tested bids around the ¬•162.65 level and was capped around the ¬•163.80 level. The British pound moved higher vis-√†-vis the yen as sterling tested offers around the ¬•234.65 level while the Swiss franc came off vis-√†-vis the yen as the cross tested bids around the ¬•98.05 level. The Chinese yuan appreciated sharply vis-√†-vis the U.S. dollar as the greenback closed at CNY 7.5061 in the over-the-counter market, down from CNY 7.5146. People‚Äôs Bank of China reported it will increase the flexibility of the yuan and keep the yuan‚Äôs value ‚Äúbasically stable.‚ÄĚ PBOC also reported it will maintain a moderately tight monetary policy and sees 2007 CPI growth at 4.6% with GDP growth at 11.6%.
The British pound appreciated vis-√†-vis the U.S. dollar today as cable tested offers around the US$ 2.0380 level and was supported around the $2.0195 level. The pair reached its strongest level since 9 August on some expectations that Bank of England‚Äôs Monetary Policy Committee will not have to lower interest rates like the Federal Reserve has done. Many traders, however, are confused by sterling‚Äôs movements because there were press reports overnight that Northern Rock PLC has received additional emergency funding from Bank of England. Others note that Northern Rock‚Äôs problems are already discounted in the market and as long as the contagion does not spread to other financial institutions, the BoE‚Äôs rate outlook may remain neutral. Other data released in the U.K. today saw September GfK/ NOP consumer confidence fall to -7 from -4 in August while Land Regisry house prices were up 0.2% m/m and 9.4% y/y in England and Wales. It was also reported that the U.K. government‚Äôs deficit fell to 2.5% of GDP in the fiscal year to April 2007. Cable bids are cited around the US$ 2.0270 level. The euro weakened vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6965 level and was capped around the ‚ā§0.7015 level.
The Swiss lost appreciated vis-√†-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1685 level and was capped around the CHF 1.1740 level. The KOF research institute lifted its Swiss 2007 GDP forecast to 2.8% from 2.4% but reduced its 2008 forecast to 1.9%. KOF also noted that inflation remains benign. These forecasts are consistent with Swiss National Bank‚Äôs quarterly report released this week. U.S. dollar offers are cited around the CHF 1.1760 level. The euro moved lower vis-√†-vis the Swiss franc and tested bids around the CHF 1.6575 level while the British pound came off vis-√†-vis the Swiss franc and tested offers around the CHF 2.3840 level.
The Australian dollar appreciated vis-√†-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8835 level and was supported around the $0.8785 level. Data released in Australia today saw August private sector credit growth up 1.5% m/m and 16.2% y/y. Also, the TD Securities-Melbourne Institute monthly inflation gauge was up 0.2% in September, down from +0.5% in August. Australian dollar bids are cited around the US$ 0.8700 figure. The New Zealand dollar scored strong gains vis-√†-vis the U.S. dollar as kiwi tested offers around the US$ 0.7575 level and was supported around the $0.7495 level. Data released in New Zealand today saw Q2 GDP growth of 0.7%, more-than-expected. New Zealand dollar bids are cited around the US$ 0.7375 level.
The Canadian dollar extended recent gains vis-√†-vis the U.S. dollar today as the greenback tested bids around the C$ 0.9940 level and was capped around the $1.0020 level. The reached a new multi-decade low after the U.S. dollar crumbled in early North American dealing. Traders are driving the loonie higher on account of elevated oil prices and Canada‚Äôs positive fiscal position. Prime Minister Harper yesterday announced the country realized a C$ 13.8 billion budget surplus in the latest fiscal year and Canada is notably the only member of the Group of Seven to maintain a budget surplus. Data released in Canada today saw August industrial product prices register their fourth consecutive monthly decline in August, off 0.1% m/m, while the August raw materials price index was off 2.8% m/m. Other data released today saw July GDP up 0.2% m/m, weaker-than-expected. U.S. dollar offers are cited around the C$ 1.0090 level.
Gold moved higher vis-√†-vis the U.S. dollar today as the yellow metal tested offers around the US$ 743.65 level and was supported around the $732.50 level. Eurosystem central banks sold two tons of gold in the week that ended 21 September and this means 443 tons of gold have been sold this third year of the Washington Agreement. The U.S. dollar‚Äôs weakness is resulting in gold strength. Silver gained ground vis-√†-vis the U.S. dollar as the pair tested offers around the US$ 13.67 level and was supported around the $ 13.44 level.
Crude oil gained ground vis-√†-vis the U.S. dollar today as light, sweet NYMEX crude oil futures for November delivery tested offers around the US$ 83.68 level and were supported around the US$ 82.55 level. Oil reached a new all-time high in London as traders continue to hedge against the U.S. dollar‚Äôs weakness. Additionally, global crude inventories are being depleted and tighter fundamentals are keeping prices supported. Storms in the U.S. gulf region are forcing prices higher as are continued tensions in Iran and Nigeria.
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