Daily Forex Trading Commentary: Traders Reduce Odds Of Fed Lifting Rates Before End 2008

EURO

The euro appreciated vis-à-vis the U.S. dollar Tuesday as the single currency tested offers around the US$ 1.4225 level and was supported around the $1.4045 level. The common currency reached its lowest level since 9 October 2007 before moving higher. The U.S. dollar is lower on rumours that Lehman Brothers (LEH) is facing significant funding problems, and on ongoing ease regarding the U.S. financial sector. The Federal Reserve convenes in one week to deliberate monetary policy and is expected to keep the overnight federal funds rate unchanged at 2.25%. The fed funds futures market is currently only pricing in about a 2% chance the Fed will lift the fed funds target rate before the end of year, down from 22% yesterday. Data released in the U.S. saw July wholesale inventories rise 1.4% while sales were off 0.3%. Additionally, the U.S. July pending home sales index was off 3.2% to 86.5, the latest evidence that the beleaguered U.S. housing market remains in the doldrums.

In eurozone news, European Central Bank member Gonzalez-Paramo reported “serious efforts are need to improve the financial markets. The euro shook off data that saw Germany’s trade surplus narrow to €13.9 billion from €19.9 billion in June. The European Central Bank is expected to keep interest rates unchanged for at least the next couple of months. Euro bids are cited around the US$ 1.3840 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar Tuesday as the greenback tested bids around the ¥107.05 level and was capped around the ¥108.40 level. Technically, Tuesday’s intraday low was right around the 23.6% retracement of the move from ¥95.70 to ¥110.65. The yen gained ground on growing concerns that U.S. investment banking giant Lehman Brothers is unable to secure necessary funding in the capital markets. Lehman traded as high as $66.58 this year and traded as low as $8.00, its lowest price since October 1998.

Many traders believe the U.S. government and/ or Federal Reserve may need to facilitate a bail out Lehman Brothers, much as Bear Stearns was taken over in March. The yen gained ground on this speculation as traders were less inclined to sell yen and invest the proceeds in higher-yielding overseas asset markets.

Data released in Japan overnight saw August machine tool orders off 14.2% y/y. The Nikkei 225 stock index climbed 1.77% to close at ¥12,400.65. Dollar bids are cited around the ¥103.20 level.

The euro came off vis-à-vis the yen as the single currency tested bids around the ¥150.85 level and was capped around the ¥153.50 level. The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥187.90 and ¥94.65 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8381 in the over-the-counter market, down from CNY 6.8433.

STERLING

The British pound appreciated vis-à-vis the U.S. dollar as cable tested offers around the US$ 1.7705 level and was supported around the $1.7505 level. Cable retraced some of Monday’s intraday losses despite the release of soft U.K. economic data. First, July U.K. manufacturing output was off 0.4% m/m and 1.4% y/y, the fifth consecutive monthly decline in output. Second, BRC August retail sales were off 1.0% y/y, evidencing the worst summer period for U.K. retailers since 2005. Dealers await U.K. trade balance data next. Cable bids are cited around the $1.7420 level.

The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8005 level and was capped around the ₤0.8175 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar as the greenback tested bids around the CHF 1.1220 level and was capped around the CHF 1.1365 level. Staffing firm Manpower reported Swiss companies plan to increase their staffs in Q4. U.S. dollar offers are cited around the CHF 1.1390 level.

The euro and British pound came off vis-à-vis the yen as the crosses tested bids around the CHF 1.5925 and CHF 1.9815 levels, respectively.

Posted in Categories: Contributor, Economy, Eurozone, External Research, Forex, Japan, Switzerland, UK, USA.

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Comment by Georgie

2008-09-10 11:30:45

The USD rally is still intact I think and traders should get on the bull wave if possible.

Forget about economics.

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