Wednesday October 31, 2007 - 15:56:18 GMT
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Forex and Commodity Market Commentary and Analysis (31 October 2007)
The euro moved higher vis-Ă -vis the U.S. dollar today as the single currency tested offers around the US$ 1.4465 level and was supported around the $1.4420 level. Todayâ€™s intraday range was limited ahead of the FOMCâ€™s interest rate decision. Traders pared back their interest rate expectations even further today after the release of stronger-than-expected preliminary U.S. Q3 GDP data that saw the economy expand an annualized 3.9%, up from 3.8% in Q2. These data suggest the economy may have shrugged off the credit market turmoil of the summer â€“ so far. The GDP price index ex-food and energy rose 1.6% q/q and 2.3% y/y while the core personal consumption expenditures index rose an annualized 1.8% in Q3, up from 1.4% in Q2 but below the perceived 2.0% upper limit of the Fedâ€™s comfort zone. Also, the Q3 employment cost index rose 0.8% q/q, down from 0.9% in Q2, and were up 3.3% y/y. The markets believe there is a 90% chance the FOMC will reduce the federal funds target rate by 25bps today to 4.50%. Other data released today saw October ADP private payrolls up 106,000 and many dealers believe this Fridayâ€™s October non-farm payrolls report will have a strong print with upward revisions to Augustâ€™s and Septemberâ€™s jobs tallies. Also, September construction spending was up +0.3%. In eurozone news, the EMU-13 October flash harmonized index of consumer prices was up 2.6% y/y, much higher than expectations and Septemberâ€™s 2.4% print. ECBâ€™s Draghi suggested â€śhigher global credit costs are likely to stayâ€ť while ECBâ€™s Weber noted â€śRisks to price stability have increased in recent weeks. We at this stage cannot exclude the option that...this will warrant further action.â€ť ECBâ€™s Constancio suggested the financial market turmoil will â€śresult in a slowdown of the U.S. and European economies.â€ť Todayâ€™s HICP print means that inflation remains the ECBâ€™s biggest priority and this could support the euro in the near-term. Other data released today saw EMU-13 September unemployment fall to 7.3% from 7.4% in August while German September machinery and new plant orders were up 7% y/y. Also, German September retail sales climbed 2.3% m/m and were off 2.2% y/y. Euro bids are cited around the US$ 1.4220 level.
The yen depreciated vis-Ă -vis the U.S. dollar today as the greenback tested offers around the ÂĄ115.40 level and was supported around the ÂĄ114.50 level. Technically, todayâ€™s intraday high was just above the 50% retracement of the move from ÂĄ112.55 to ÂĄ117.90. As expected, the BoJ kept rates unchanged at 0.50% today. Furthermore, the BoJâ€™s semi-annual report was released and the central bank lowered its real GDP growth forecast to 1.8% from 2.1% for the fiscal year ending in March 2008. BoJ Governor Fukui cited a greater downside risk to Japanâ€™s economy from U.S. sub-prime mortgage worries and the weak U.S. housing market. Most traders believe Japanese rates will be on hold through the end of 2007 and this means the yen carry trade could remain popular if global asset market prices remain underpinned. Data released in Japan today saw September housing starts fall 44% while September orders received by the 50 largest contractors were off 16.3% y/y. Also, September construction orders were off 16.3% y/y and September employeesâ€™ average pay was off 6.5%. The Nikkei 225 stock index gained 0.52% to close at ÂĄ16,737.63. Dollar bids are cited around the ÂĄ113.85/ ÂĄ112.55 levels. The euro moved higher vis-Ă -vis the yen as the single currency tested offers around the ÂĄ166.80 level and was supported around the ÂĄ165.35 level. The British pound and Swiss franc gained ground vis-Ă -vis the yen as the crosses tested offers around the ÂĄ239.15 and ÂĄ99.45 levels, respectively. The Chinese yuan appreciated sharply vis-Ă -vis the U.S. dollar as the greenback closed at CNY 7.4630 in the over-the-counter market, down from CNY 7.4716. Todayâ€™s closing low represents the pairâ€™s weakest close since the yuan revaluation of July 2005. SAFE reported the Chinese economy may expand significantly in H2 2007. The economy expanded 11.5% in Q3 and the current account surplus was US$ 162.9 billion in H1 2007. Many traders believe PBOC will tighten monetary policy again imminently.
The British pound strengthened vis-Ă -vis the U.S. dollar today as cable tested offers around the US$ 2.0740 level and was supported around the $2.0660 level. The pair established a new multi-decade high after Nationwide reported October house prices were up 1.1% m/m and 9.7% y/y, an acceleration from Septemberâ€™s level and an indication that the summerâ€™s credit market turmoil may not have slowed the U.K. housing sector as much as expected. These data support the argument that BoEâ€™s MPC will not lower its repo rate next week. MPCâ€™s Blanchflower suggested there are some signs of economic â€śslownessâ€ť and MPCâ€™s Bean speaks later in the North American session. Other data released today saw the October GfK consumer confidence index decline to -8, the lowest reading since March. Cable bids are cited around the US$ 2.0420 level. The euro moved lower vis-Ă -vis the British pound as the single currency tested bids around the â‚¤0.6955 level and was capped around the â‚¤0.6980 level.
The Swiss franc depreciated vis-Ă -vis the U.S. dollar today as the greenback tested offers around the CHF 1.1625 level and was supported around the CHF 1.1565 level. The pair earlier reached its lowest level since March 2005. Data released in Switzerland today saw the October KOF economic barometer decline to 2.02 from a revised 2.04 in September. Dollar offers are cited around the CHF 1.1665 level. The euro and British pound gained ground vis-Ă -vis the Swiss franc as the crosses tested offers around the CHF 1.6775 and CHF 2.4090 levels, respectively.
The Australian dollar extended recent gains vis-Ă -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.9245 level and was supported around the $0.9180 level. The A$ came within about 25 pips of establishing a new multi-decade high. Data released in Australia today saw September private sector credit growth up 1.2% m/m while Q3 new home sales were off 3.0% q/q and September building approvals were up 6.8% m/m. Australian dollar bids are cited around the US$ 0.9075 level. The New Zealand dollar appreciated vis-Ă -vis the U.S. dollar as the kiwi tested offers around the US$ 0.7680 level and was supported around the $0.7620 level. New Zealand dollar bids are cited around the US$ 0.7595 level.
The Canadian dollar continued its ascent vis-Ă -vis the U.S. dollar today as the greenback tested bids around the C$ 0.9495 level and was capped around the C$ 0.9565 level. Data released in Canada saw August GDP growth print at 0.2%. Finance minister Flaherty reported the Canadian corporate tax rate will fall to 15% by 2012. The government also reported trading in the loonie is speculative and does not reflect domestic economic fundamentals. The government expects the C$ will depreciate in 2008 and 2009. U.S. dollar offers are cited around the $0.9735 level.
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