Daily Forex Market Commentary

EURO

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5620 level and was supported around the $1.5490 level. The common currency erased some of yesterday’s losses as traders reacted to a move higher in August crude oil futures to an all-time high of US$ 138.75 per barrel. Dealers cite lower-than-normal liquidity ahead of tomorrow’s Federal Open Market Committee interest rate decision. The Fed is expected to keep its federal funds target rate unchanged at 2.00% but is expected to be relatively hawkish in its policy statement, likely noting that inflationary risks outweigh risks of an economic slowdown. Data released in the U.S. today was generally weak. First, it was reported that June consumer confidence fell to 50.4 from 58.1 in May. Second, the April S&P/ Case Shiller home price index was off a record 15.3% y/y, the sixteenth consecutive month of yearly price declines. Third, a U.S. government measure of house prices was off 0.8% m/m and 4.6% y/y in April. Fourth, the Richmond Fed June manufacturing index printed at -12 from -3 in May. In eurozone news, traders await comments from European Central Bank President Trichet later in the day regarding wage inflation. Most dealers expect the ECB will lift the overnight call rate by 25bps to 4.25% in July but the move is expected to be a one-off move for now. Data released in the eurozone today saw the German GfK July consumer sentiment index print at 3.9, down from 4.7 in June and lower than expected. Slovenian finance minister Bajuk said the ECB needs to “have all its options open” on inflation. Germany’s Bundesbank reported its still sees German 2008 GDP growth of 2.3% while Ifo lifted its forecast to 2.4%. Also, the French June business climate indicator printed at 102, unchanged from May. Euro bids are cited around the $1.5230 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.35 level and was capped around the ¥108.20 level. The pair retraced some of yesterday’s gains as traders position themselves ahead of tomorrow’s Federal Reserve interest rate decision. Prime Minister Fukuda yesterday said he will ask his Group of Eight colleagues to tackle oil and food inflation when policymakers convene in northern Japan in July. Yesterday’s government report on large company sentiment came in weaker-than-expected and that may not bode well for Bank of Japan’s Tankan survey of consumer sentiment on 1 July. The Nikkei 225 stock index lost 0.06% to close at ¥13,849.56. Dollar bids are cited around the ¥103.00/ 101.35 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥168.20 level and was supported around the ¥167.30 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥212.85 and ¥103.85 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8699 in the over-the-counter market, down from CNY 6.8740 – the pair’s lowest close since the yuan revaluation of July 2005.

STERLING

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9720 level and was supported around the $1.9625 level. Data released in the U.K. today saw BBA May mortgage approvals fall to 27,968, the lowest level in more than one decade. These data are consistent with other recent measures of U.K. housing activity that have seen mortgage and lending data recede to multi-year lows. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7930 level and was supported around the ₤0.7890 level.

SWIS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0350 level and was capped around the CHF 1.0470 level. Data released in Switzerland today saw the UBS May consumption indicator decline to 1.91 from 2.16 in April and 2.25 in March. U.S. dollar bids are cited around the CHF 1.0250 level. The euro and British pound lost ground vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6160 and CHF 2.0405 levels, respectively.

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