Tuesday: Daily Forex Market Summary

EURO

The euro moved sharply higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4275 level and was supported around the $1.4075 level. The common currency gained ground as traders reacted to the Federal Reserve’s US$ 85 billion bailout of troubled U.S. insurance giant AIG. The Fed assumed 79.9% of AIG’s equity in exchange for the cash infusion in an extraordinary move designed to mitigate systemic risk in the U.S. financial system. Traders are now focusing on other U.S. investment banks including Goldman Sachs and Morgan Stanley. Overnight interbank lending rates remain abnormally high and traded as high as 8% today, significantly above the Federal Reserve’s 2.0% federal funds target rate. Data released in the U.S. today saw August housing starts fall 6.2% to an annualized 895,000 unit rate, the lowest level since 1991. Other data saw the U.S. current account deficit widen to –US$ 183.1 billion in the April to June period, worse than –US$ 175.6 billion in Q1. Also, August building permits fell 8.9% to an annualized 854,000 level.

In eurozone news, Eurogroup chairman Juncker called on governments to do their part to avoid second-round inflation effects. ECB’s Tumpel-Gugerell said she sees the “first signs of second-round effects” in inflation. Data released in the eurozone today saw the EMU-15 July trade deficit widen to €2.3 billion. Euro bids are cited around the US$ 1.3840 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥104.40 level and was capped around the ¥106.95 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from ¥124.15 to ¥95.70. As expected, Bank of Japan’s Policy Board voted unanimously to keep the overnight call rate unchanged at 0.50%. BoJ Governor Shirakawa said the central bank will continue to watch downside economic risks and upside inflation risks. Ministry of Finance’s Shinohara said Japanese policymakers said the government will “still need to watch how” the currency markets trade. The central bank also kept its assessment of the economy unchanged, reporting it is “still sluggish.” On the political front, the Liberal Democratic Party will select a new party leader on Monday who will likely become the country’s next Prime Minister. Former foreign minister Aso is seen as outgoing Prime Minister’s Fukuda likely successor. The Nikkei 225 stock index climbed 1.21% to close at ¥11,749.79. U.S. dollar bids are cited around the ¥102.45 level.

The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥147.50 level and was capped around the ¥151.55 level.

The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥190.80 and ¥95.20 levels, respectively.

The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8370 in theo over-the-counter market, down from CNY 6.8490.

STERLING

The British pound moved sharply higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8115 level and was supported around the $1.7785 level. Sterling was higher on account of Bank of England Monetary Policy Committee meeting minutes that evidenced an 8-to-1 vote in September to keep interest rates unchanged. The minutes were a little more hawkish than traders anticipated and this led to sterling’s gains. Notably, however, MPC member Besley did not vote for a rate hike, an expectation the central bank is inching closer to a rate cut. Traders are also talking about market reports that Halifax is in talks to merge with Lloyds Bank. Data released in the U.K. today saw the CBI’s monthly industrial trends total orders books balance fall to -26 from -13 in August, the lowest reading since January 2006. Additionally, the August U.K. claimant count of jobless persons spiked 32,500, its largest rise since December 1992. Cable bids are cited around the $1.7605 level.

The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7865 level and was capped around the ₤0.7985 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1060 and was capped around the CHF 1.1250 level. Technically, today’s intraday low was right around the 50% retracement of the move from CHF 1.2465 to CHF 0.9645. Data released in Switzerland today saw the September ZEW investor sentiment index improve to -44.4 from -79.6 in August. U.S. dollar offers are cited around the CHF 1.1430 level.

The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5800 and CHF 1.9920 levels, respectively.

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

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