Tuesday October 2, 2007 - 16:55:35 GMT
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Forex and Commodity Market Commentary and Analysis (2 October 2007)
The euro weakened vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4140 level and was capped around the $1.4235 level. Stops were hit below the $1.4170 level, representing the 23.6% retracement of the move from $1.3825 to $1.4280. European financial and monetary officials continue to jawbone over the common currency‚Äôs relative strength and this verbal intervention is leading to a weaker currency. Spanish deputy finance minister Vegara today said ‚Äúnot all the necessary adjustment should come through the euro/ dollar exchange rate‚Ä¶There are important agents like the yen and yuan that should also have some of the responsibility of the adjustment of the so-called world financial imbalances.‚ÄĚ This verbal intervention follows similar comments from officials like Trichet and Juncker yesterday. Recent volatility in the markets up the chances that the upcoming Group of Seven finance ministers‚Äô meeting will include a statement about disorderly exchange rates, particularly as more European officials are intervening. Data released in the eurozone today saw EMU-13 August unemployment print at 6.9%, unchanged from July‚Äôs level, while EMU-13 August PPI was up 0.1% m/m and 1.7% y/y. In U.S. news, Redbook retail sales were up +0.3% m/m in the first four weeks of September. Traders await the release of September non-farm payrolls data on Friday with most economists expecting about 100,000 new jobs were created. Some dealers believe the Federal Open Market Committee will reduce the federal funds target rate by 25bps at the end of October while others believe the FOMC will lower the federal funds target rate by 25bps or 50bps in December. Euro bids are cited around the US$ 1.4120/ 1.4055 levels.
The yen depreciated vis-√†-vis the U.S. dollar today as the greenback tested offers around the ¬•115.90 level and was supported around the ¬•115.25 level. Dollar bulls are eyeing the ¬•116.35/55 levels as the pair‚Äôs next upside target. The mixed Bank of Japan quarterly Tankan survey that was released yesterday did not help the yen‚Äôs cause as there was little to change the view that the central bank is likely to leave the overnight call rate unchanged at +0.50% for the foreseeable future. Many traders believe the BoJ will not lift the target rate by +25bps to +0.75% before the end of the year. Japanese economic data as of late has been fairly strong but the changing political environment and international financial market turmoil are working against central bank officials who want to move rates higher now. Data released in Japan overnight saw the September monetary base up 0.7% y/y, the second consecutive monthly rise. The Nikkei 225 stock index climbed 1.19% to close at ¬•17,046.78. Dollar bids are cited around the ¬•114.55 level. The euro moved lower vis-√†-vis the yen as the single currency tested bids around the ¬•163.65 level and was capped around the ¬•164.85 level. The British pound and Swiss franc came off vis-√†-vis the yen as the crosses tested bids around the ¬•234.90 and ¬•98.30 levels, respectively. In Chinese news, traders continue to speculate People‚Äôs Bank of China will tighten monetary policy at least one more time by the end of the year.
The British pound came off vis-√†-vis the U.S. dollar today as cable tested bids around the US$ 2.0365 level and was capped around the $2.0445 level. Technically, the paid continues to orbit the $2.0415 level, representing the 76.4% retracement of the move from $2.0655 to $1.9650 level. Bank of England conducted a section auction of ‚ā§10 billion to inject liquidity into the three-month interbank money market but failed to attract bids. The three-month sterling Libor rate fell to 6.26% from 6.28% yesterday. Traders are talking about media reports that U.K. banks are instead bidding on liquidity from the European Central Bank. It is being reported that U.K. banks bid on a ‚Äúsubstantial part‚ÄĚ of the ‚ā¨190 billion lent in the ECB‚Äôs variable rate tender last week. Data released in the U.K. today saw September construction PMI fall to 60.3 from 64.8 in August. Cable bids are cited around the US$ 2.0270 level. The euro moved lower vis-√†-vis the British pound as the single currency tested bids around the ‚ā§0.6930 level and was capped around the ‚ā§0.6970 level.
The Swiss lost ground vis-√†-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1775 level and was supported around the CHF 1.1675 level. Stops were reached above the CHF 1.1745 level, representing the 23.6% retracement of the move from CHF 1.2145 to CHF 1.1620. Credit Suisse lifted its 2007 GDP forecast to 2.5% from 2.2% and kept its 2008 GDP forecast unchanged at 1.9%. Similarly, the Swiss government raises its 2007 GDP forecast to 2.6% from 2.3. The Swiss government also reported that September CPI was up 0.1% m/m and 0.7% y/y. U.S. dollar offers are cited around the CHF 1.1825 level. The euro and British pound gained ground vis-√†-vis the Swiss franc as the crosses tested offers around the CHF 1.6660 and CHF 2.4020 levels, respectively.
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