Friday November 9, 2007 - 15:06:59 GMT
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Forex and Commodity Market Commentary and Analysis (9 November 2007)
The euro extended recent gains vis-Ă -vis the U.S. dollar today as the single currency tested offers around the US$ 1.4750 level and was supported around the $1.4665 level. The common currency established a new lifetime high and traders continue to speculate when the pair will test the psychologically-important US$ 1.5000 figure. U.S. Treasury Secretary Paulson reiterated the U.S. dollarâ€™s long-standing strong dollar policy overnight but most traders believe the Bush administration is complacent with the dollarâ€™s recent weakness. Dealers are also increasingly speculating the FOMC will ease monetary policy further in December and January on account of ongoing credit market turmoil and the U.S. housing market recession. Traders seem to be convinced the Fed is more concerned with the lower growth scenario at this stage compared with inflation as the December federal funds futures contract is now pricing in about a 90% chance the FOMC will reduce its overnight target rate by 25bps to 4.25% at its 11 December policy-setting meeting. Likewise, the market is pricing in about a 75% chance the federal funds target rate will be lowered to 4% by the end of the FOMCâ€™s two-day meeting at the end of January. Data released in the U.S. today saw the September trade balance narrow to â€“US$ 56.45 billion from â€“US$ 56.8 billion in August. TIC capital flows data will be published in a few days and traders will determine whether or not the U.S. was able to finance its trade deficit two months ago. Other data released in the U.S. today saw October import prices rise 1.8%, up from Septemberâ€™s 0.8% print, and were up 9.6% y/y, nearly double Septemberâ€™s 5% y/y climb. These data suggest the weakness of the U.S. dollar may be effecting imported inflation pressures and will be of concern to the Fed. Also, the preliminary November University of Michigan consumer sentiment index fell sharply to 75.0. In eurozone news, European officials continue to jawbone about the single currency. European Central Bank member Mersch reported â€śFor us, we do not have an objective of exchange rateâ€¦ If there would be brutal moves, the dangers of a disorderly unwinding [of global imbalances] would be increased.â€ť Data released in the eurozone today saw French September industrial production fall 1.1% while German October wholesale prices were up 0.5% m/m and 4.7% y/y. Euro bids are cited around the US$ 1.4560 level.
The yen moved sharply higher vis-Ă -vis the U.S. dollar today as the greenback tested bids around the ÂĄ110.95 level and was capped around the ÂĄ112.90 level. Todayâ€™s intraday low was the pairâ€™s weakest showing since May 2006 and coincided with an unwinding of short yen carry trades. Bank of Japanâ€™s Policy Board convenes on Monday and Tuesday and is largely expected to keep the overnight call rate unchanged at +0.50%. Data released in Japan overnight saw September industrial output off 1.4% m/m, consistent with estimates. Nonetheless, many traders believe the Japanese economy likely expanded in Q3. Any sense of hawkishness from the central bank will likely lead to additional yen buying, especially at the expense of higher-yielding commodity currencies. The Nikkei 225 stock index lost 1.19% to close at ÂĄ15,583.42. Dollar bids are cited around the ÂĄ110.25 level. The euro fell sharply vis-Ă -vis the yen as the single currency tested bids around the ÂĄ162.95 level and was capped around the ÂĄ166.00 figure. The British pound and Swiss franc depreciated vis-Ă -vis the yen as the crosses tested bids around the ÂĄ232.75 and ÂĄ98.80 levels, respectively. The Chinese yuan appreciated vis-Ă -vis the U.S. dollar as the greenback closed at CNY 7.4108 in the over-the-counter market, down from CNY 7.4207 â€“ the pairâ€™s weakest closing rate since the yuan revaluation of July 2005. Traders are wondering when the pair will trade with a CNY 7.3 handle. PBoCâ€™s Yi Gang reported â€śfurther observation is neededâ€ť before the central bank tightens monetary policy further.
The British pound weakened vis-Ă -vis the U.S. dollar today as cable tested bids around the US$ 2.0935 level and was capped around the $2.1160 level. The pair established a new 26-year high before coming off. Data released in the U.K. today saw the September global trade deficit widen to â‚¤7.8 billion, its highest level in 60 years. Cable bids are cited around the US$ 2.0880 level. The euro moved higher vis-Ă -vis the British pound as the single currency tested offers around the â‚¤0.7010 level and was supported around the â‚¤0.6955 level.
The Swiss franc appreciated vis-Ă -vis the U.S. dollar today as the greenback tested bids around the CHF 1.1185 level and was capped around the CHF 1.1280 level. The pair came within a few pips of testing its weakest level in a couple of decades. Data released in Switzerland today saw the SECO October consumer sentiment index remain unchanged at +15, the same level in reached in July. Many traders believe Swiss National Bank will tighten monetary policy further in December. U.S. dollar offers are cited around the CHF 1.1355 level. The euro and British pound came off vis-Ă -vis the Swiss franc as the crosses tested bids around the CHF 1.6470 and CHF 2.3505 levels, respectively.
The Australian dollar weakened sharply vis-Ă -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.9145 level and was capped around the $0.9320 level. Technically, todayâ€™s intraday low was right around the 38.2% retracement of the move from $0.8750 to $0.9400. Most traders believe there is less than a 50% change the Reserve Bank of Australia will tighten monetary policy in December following this weekâ€™s +25bps tightening to 6.75%. Australian dollar bids are cited around the US$ 0.9075 level. The New Zealand dollar moved lower vis-Ă -vis the U.S. dollar today as the kiwi tested bids around the US$ 0.7680 level and was capped around the $0.7820 level. New Zealand dollar offers are cited around the US$ 0.8865 level.
The Canadian dollar slumped vis-Ă -vis the U.S. dollar today as the greenback tested offers around the C$ 0.9430 level and was supported around the C$ 0.9250 level. Data released in Canada today saw the September merchandise trade balance fall to C$ 2.65 billion from C$ 4.3 billion in August. U.S. dollar offers are cited around the C$ 0.9480 level.
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