Forex Trading Commentary: US GDP Revised Lower; US Consumer Sentiment Improves

Euro

The euro lost marginal ground vis-à-vis the U.S. dollar Friday as the single currency tested bids around the US$ 1.4555 level and was capped around the $1.4675 level. Technically, Friday’s intraday high was right around the 38.2% retracement of the move from $1.2475 to $1.6040. It appears that U.S. congressional officials have not completely agreed on the US$ 700 billion rescue package to transfer under-performing assets from banks’ balance sheets and this has limited the U.S. dollar’s upside. Most traders expect some semblance of a final deal will be in place by Monday.

Data released in the U.S. on Friday saw Q2 GDP downwardly revised to an annualized 2.8% rate from the original 3.3% estimate. Following this week’s weak durable goods and home sales data, it is quite possible that Q3 economic growth slowed to near 0%. Other data released in the U.S. today saw final September University of Michigan consumer sentiment improve to 70.3 in September from 63.0 in August. Inflation expectations softened to 4.3% from 4.8%.

The Federal Reserve expanded its temporary swap facility with the European Central Bank by US$ 10 billion. Dallas Federal Reserve Bank President Fisher said “In this context, inflation concerns appear to have fallen to the back burner. The case for a rate rise seemed both less urgent and potentially disruptive given the clear and present danger of an imploding financial system and the considerable downside risks to the economy should that implosion occur.” U.S. bank Washington Mutual became the largest U.S. bank failure ever and JP Morgan Chase Bank purchased its deposits. ECB sources said the ECB is unlikely to coordinate concerted rate cuts with other global central banks. ECB’s Papademos reported the economic outlook is uncertain and reiterated price risks are to the upside. Euro bids are cited around the US$ 1.3840 level.

Japanese Yen

The yen appreciated vis-à-vis the U.S. dollar Friday as the greenback tested bids around the ¥105.00 figure and was capped around the ¥106.55 level. Traders increased long exposure to the yen as news emerged that U.S. officials have not yet completed the details of the US$ 700 billion bailout plan. The collapse of U.S. bank Washington Mutual also decreased appetite for overseas assets, leading to additional yen gains. New finance minister Nakagawa said volatile exchange rates are “not a plus at all” for the global economy. He added “I have to be careful about the use of the term ‘foreign-exchange intervention. From the broad perspective, it’s necessary to frequently discuss (policies) with other countries and take action quickly.”

Data released in Japan overnight saw August core annual consumer price inflation print at 2.4%, consistent with expectations and the same as July’s rate. Tokyo-area core CPI rose 1.7% in September. The Nikkei 225 stock index lost 0.94% to close at ¥11,893.16.

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 bids around the ¥153.45 level and was capped around the ¥155.80 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥193.15 and ¥96.60 levels, respectively. The Chinese yuan weakened vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8485 in the over-the-counter market, up from CNY 6.8170. Bank of China reported Chinese GDP growth will remain in the single digits in 2008 and 2009.

British Pound

The British pound gained ground vis-à-vis the U.S. dollar Friday as cable tested offers around the US$ 1.8465 level and was supported around the $1.8335 level. Data released in the U.K. Friday saw Land Registry August house prices fall 1.9% m/m and 4.6% y/y. Bank of England announced it will lend US$ 30 billion in one-week funds and add ₤40 billion on Monday. Cable bids are cited around the $1.8150 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7920 level and was capped around the ₤0.7965 level.

Swiss Franc

The Swiss franc appreciated vis-à-vis the U.S. dollar as the greenback tested bids around the CHF 1.0830 level and was capped around the CHF 1.0910 level. The Federal Reserve increased its swap line with Swiss National Bank by US$ 3 billion. Data released in Switzerland today saw the September KOF indicator fall to 0.62, a five-year low. U.S. dollar offers are cited around the CHF 1.1430 level. The euro and British pound moved lower vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5860 and CHF 1.9945 levels, respectively.

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

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