Thursday: Daily Forex Market Commentary

EURO

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4540 level and was supported around the $1.4280 level. Technically, today’s intraday high was just above the 61.8% retracement of the move from $1.4910 to $1.3880. The Federal Reserve reported it is expanding its reciprocal currency agreements to US$ 180 billion, lifting its swap lines with the European Central Bank and Swiss National Bank. The Fed also established new swap agreements with Bank of Japan, Bank of England, and Bank of Canada. The Fed also injected US$ 50 billion of temporary reserves via overnight repo operations. Traders remain fixated on volatility in the global financial markets and many expect U.S. investment banking giant Morgan Stanley will merge with Wachovia Bank. Data released in the U.S. today saw the September Philadelphia Fed business activity index improve to +3.8. Also, August leading economic indicators fell 0.5%, the lowest since October 2004. Weekly initial jobless claims rose 10,000 to 455,000 while continuing claims were off 55,000 to 3.48 million.

In eurozone news, European Central Bank member Stark said the central bank “does not tolerate” second-round inflation effects. The overnight swaps market now implies the ECB will slash interest rates by 25bps in February. 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 ¥104.00 figure and was capped around the ¥105.55 level. Bank of Japan introduced U.S. dollar supply money market operations for the first time ever overnight as part of the global concerted effort by central banks to cope with very strong U.S. dollar demand. BoJ will offer U.S. dollars through the end of January using a US$ 60 billion swap agreement with the Federal Reserve Bank of New York. Finance minister Ibuki said the swap deal was not made so that Japanese monetary authorities could intervene in the foreign exchange markets. Data released in Japan overnight saw August machine tool orders revised to -13.9%. Other data saw the July tertiary sector index up 1.2% m/m. BoJ reduced its assessment of business investment in its September monthly report and reiterated economic growth is “sluggish.” BoJ Deputy Governor Nishimura reported “Even considering the effect of the failure of major (U.S.) investment banks I don’t expect it to seriously affect the stability of Japan’s overall financial system.” The Nikkei 225 stock index lost 2.22% to close at ¥11,489.30. U.S. dollar bids are cited around the ¥102.45 level.

The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥151.95 level and was supported around the ¥149.00 figure.

The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥191.75 and ¥96.00 levels, respectively.

In Chinese news, the August property climate index was off 2.7 points to 101.78.

STERLING

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8275 level and was supported around the $1.8090 level. U.K. bank Lloyds TSB agreed a ₤12.2 billion deal to purchased troubled U.K. financial institution HBOS. Bank of England Monetary Policy Committee member Dale said upside and downside economic risks are “finely balanced.” Data released in the U.K. today saw August mortgage lending fall 12% m/m and 36% y/y while U.K. public sector net borrowing rose to ₤10.4 billion. Additionally, U.K. retail sales volumes were up 1.2% m/m and 3.3% y/y in August. Cable bids are cited around the $1.7605 level.

The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.7960 level and was supported around the ­₤0.7865 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0900 figure and was capped around the CHF 1.1110 level. As expected, Swiss National Bank kept interest rates unchanged today and reported “In view of the major uncertainties relating to both the global economy and the fallout from the international financial crisis, the SNB considers that a prudent attitude is appropriate and that the current monetary policy course should be retained. Nevertheless, the high level of inflation at present requires that the SNB remain vigilant.” SNB’s target band for three-month Swiss franc LIBOR remains at 2.25 to 3.25% and is aiming for 2.75%. The SNB lifted its 2009 Swiss inflation forecast from an average of 2.7% in 2008 and kept its 2008 economic growth forecast unchanged at 1.5% to 2.0%. Data released in Switzerland today saw the August trade surplus narrow to CHF 1.4 billion. U.S. dollar offers are cited around the CHF 1.1430 level.

The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5770 and CHF 1.9885 levels, respectively.

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

Subscribe by RSS Subscribe by Email