U.S. Forex Market Commentary

Wed, Jun 18 2008, 23:56 GMT
by GCI Financial Team

GCI

EURO

The euro weakened vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5465 level and was capped around the $1.5535 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from $1.6020 to $1.5280. European Central Bank member Stark spoke today and reported “The current annual inflation rate in the euro zone of 3.7 percent in May is unacceptably high. This is cause for alarm and for heightened alertness. Given the price dynamics and the continuing, if not increased, risks to price stability, along with clear declines in real interest rates, I consider it advisable to review the appropriateness of the current level of leading interest rates.” Most traders believe the ECB will lift its main refinancing target rate by 25bps to 4.25% next month. Stark added “increasing tendencies in price and wage-setting behaviour…point to second-round effects.” The German government reported it expects economic growth in Q2 2008 to be “dampened” compared with Q1. In U.S. news, the Financial Times reported expectations for Fed rate hikes are inconsistent with Fed policymakers’ current views. Also, the Wall Street Journal reported the Fed is likely to keep rates steady until Q3 or Q4 “unless the inflation outlook deteriorates considerably.” Euro bids are cited around the $1.5230 level.

JPY / CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.40 level and was supported around the ¥107.85 level. The pair retraced some of yesterday’s losses as traders continued to speculate Bank of Japan’s Policy Board will not lift the overnight call rate target from 0.50% anytime soon. Minutes from Bank of Japan’s Policy Board meetings on 19-20 May revealed concerns over “both supply and demand shocks” to the Japanese economy. Data released in Japan overnight saw May department store sales off 2.7%, the third consecutive monthly decline. Also, the April index of leading economic indicators printed at 92.8 while the coincident index remained steady at 101.7. The Nikkei 225 stock index gained 0.73% to close at ¥14,452.82. Dollar bids are cited around the ¥103.00/ 101.35 levels. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥167.00 figure and was capped around the ¥168.05 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥210.40 and ¥103.40 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8821 in the over-the-counter market, down from CNY 6.8915 and the pair’s lowest close since the yuan revaluation of July 2005. People’s Bank of China advisor Wei Benhua reported “China needs to appropriately increase the flexibility of the exchange rate and gradually let the exchange rate be basically decided by market forces.” PBoC Governor Zhou noted “A weak dollar will inevitably result in a rise in primary products including commodities, including oil. Therefore, the RMB will also face a rising pressure, which will drive up inflation.”

STERLING

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9575 level and was supported around the $1.9475 level. Cable clawed back its earlier intraday losses as traders continued to weigh higher inflation pressures and expectations against a slowing U.K. economy. Minutes from Bank of England’s June Monetary Policy Committee meeting were released today in which rate-setters voted 8-to-1 to keep the headline repo rate unchanged at 5.0%. MPC archdove Blanchflower voted for a 25bps reduction. Policymakers acknowledged the economy may require “a somewhat greater degree of slack…to ensure inflation returned to the target.” CBI released its June industrial trends survey and it evidenced a balance of +28% of manufacturers indicating they intend to raise prices over the next three months, down from +30% in May, a thirteen-month high. Also, the orders sub-index climbed to +1 from -10 in May. Chancellor of the Exchequer Darling, who may announce a sweeping overhaul of financial industry regulation this week, cautioned against inflation from becoming “embedded” in the economy through wage deals. The market continues to scale back its expectations regarding two or three rate hikes by the end of the year. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro weakened vis-à-vis the British pound as the single currency tested offers around the ₤0.7950 level and was supported around the ₤0.7915 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0390 level and was capped around the CHF 1.0465 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from CHF 0.9645 to CHF 1.0625. Data released in Switzerland today saw the June ZEW indicator for economic expectations decline to -63.8 from -60.4 in May while the current economic situation sub-index slipped to 53.2 from 64.6. U.S. dollar bids are cited around the CHF 1.0250 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6125 and CHF 2.0335 levels, respectively.

From: http://www.fxstreet.com/technical/market-view/us-forex-market-commentary/2008-06-18.html