Daily Market Commentary - GCI Financial

EURO

The euro appreciated sharply vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5600 figure and was supported around the $1.5405 level. Traders lifted the common currency higher as risk appetite returned to the market. Very weak economic data were released in the U.S. today that saw March consumer confidence print at 64.5, down from 76.4 in February – the weakest print in more than five years. Similarly, the expectations and present situation sub-indices fell sharply. Also, it was reported that the Standard & Poors/ Case-Shiller house price index fell 11.4% in January, its largest drop since at least 1987. Goldman Sachs today estimated that U.S. financial institutions are likely to assume about US$ 460 billion in credit losses after loan loss provisions are made but estimates that banks have only made provisions for about US$ 120 billion thus far. In eurozone news, traders await the release of tomorrow’s German Ifo business sentiment survey. Traders may reshape their expectations regarding the European Central Bank’s likely course of monetary policy if tomorrow’s print is weak. The ECB today allocated an additional €50 billion in its regular weekly refinancing operation, meaning he central bank allocated €216 billion in seven-day funds at 4.23% or higher. The massive liquidity provision didn’t have a major impact on short-term lending rates, and this may be one factor that prompts the ECB to expand monetary policy despite uncomfortably high inflation. Euro bids are cited around the US$ 1.5145 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥100.00 figure and was capped around the ¥101.05 level. Traders assumed more market risk after the long Easter weekend holiday and the U.S. dollar was given across the board. Bank of Japan Deputy Governor Shirakawa – the acting BoJ Governor – today said “(Japan’s economy) is now facing many risks from both within and outside the country, such as the global financial market instability caused by the U.S. subprime loan issues and dwindling profits of Japan’s mid- and small-sized companies. In making policy, the BOJ must analyze these risks broadly, and also take into considerations the mid- and long-term economic conditions, as well as the current ones.” Shirakawa touched on exchange rates saying “The recent volatility is reflecting the process of adjustments and risk-reassessment in the international financial market. It may take some time.” Some traders believe the central bank will be forced to reduce interest rates this year. Finance minister Nukaga said Japan’s economy recovery seems to be “pausing,” a contrast to the government’s statement in February that the “economy is recovering at a moderate pace.” The Nikkei 225 stock index climbed 2.12% to close at ¥12,745.22. Dollar offers are cited around the ¥102.05 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥156.75 level and was supported around the ¥155.10 level. The British pound weakened vis-à-vis the yen as sterling tested bids around the ¥199.25 level and was capped around the ¥200.90 level while the Swiss franc moved higher vis-à-vis the yen as the pair tested offers around the ¥99.50 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.0448 in the over-the-counter market, down from CNY 7.0555, the pair’s weakest close since the yuan revaluation of July 2005.

STERLING

The British pound appreciated sharply vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0005 level and was supported around the $1.9845 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from $1.9360 to $2.0395. The British media reported that Bank of England Governor King informed major money-center banks that he will follow the European Central Bank’s lead in providing funding against a wider range of collateral but will not do so to the extent the Fed has done. BoE said it does not want to get involved in a situation where taxpayers – and not the central bank – assume credit risk. Cable bids are cited around the US$ 1.9880/ 1.9605 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7825 level and was supported around the ₤0.7750 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0070 level and was capped around the CHF 1.0220 level. Stops were reached below the CHF 1.0105 level, representing the 23.6% retracement of the move from CHF 0.9645 to CHF 1.0250 level. Data released in Switzerland today saw the February UBS consumption indicator print at 2.32, up from 2.15 in January, its highest level in eight months. U.S. dollar offers are cited around the CHF 1.0375 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5705 and CHF 2.0095 levels, respectively.

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