Daily Market Commentary - GCI Financial

EURO

The euro gained ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5895 level and was supported around the $1.5760 level. The common currency came within ten pips of establishing a new lifetime high. Dealers lifted the pair higher after it was reported the EMU-15 March inflation rate printed at 3.5%, up from February’s 3.3% level and significantly above the European Central Bank’s 2.0% ceiling target. These data render it more difficult for the ECB to lower interest rates in the near future. Data released in the eurozone today saw the February M3 money supply up 11.3% y/y, down from 11.5% y/y. Also, the EMU-15 March economic sentiment indicator fell to 99.6 from 100.2 in February and German February wholesale sales were off 1.1% m/m and up 7.5% y/y. In U.S. news, Treasury Secretary Paulson announced a sweeping overhaul to the U.S. financial services industry today, effectively providing the Federal Reserve with significant new powers. Additionally, the Securities and Exchange Commission and the CFTC are likely to be combined under one umbrella. Fed Chairman Bernanke is scheduled to testify on Wednesday. Data released in the U.S. today saw the March Chicago Purchasing Management business barometer rise to 48.2 from 44.5 in February while the prices paid category jumped to 83.9 in March from 79.4 in February. Euro bids are cited around the US$ 1.5560 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥100.20 level and was supported around the ¥98.80 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from ¥108.60 to ¥95.70. Today’s is the last day of Japan’s fiscal year and many traders believe Japanese accounts will begin investing yen in overseas markets from next month. Dealers await the release of tonight’s Tankan survey of business confidence for the January – March period and most economists expect a decline in confidence on account of higher input costs and lower global demand. Data released in Japan overnight saw average monthly earnings including bonuses up 1.3% y/y, the second consecutive monthly rise. Also, February housing starts were off 5.0% y/y, the eighth consecutive monthly decline, while orders received by Japan’s 50 largest contractors were up 18.4%. The Ministry of Finance confirmed it did not intervene in the foreign exchange market in March. It was also reported that February industrial production was off 1.2% m/m and was up 4.2% y/y. Dollar offers are cited around the ¥102.15 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥158.10 level and was supported around the ¥156.05 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥200.05 and ¥100.50 levels, respectively. The Chinese yuan was unchanged vis-à-vis the U.S. dollar as the greenback closed at CNY 7.0120 in the over-the-counter market. People’s Bank of China reported it will continue to tighten monetary policy because “there are evident upward inflationary pressures.” Notably, the consumer price index was up 8.7% y/y in February, the sharpest rise in nearly twelve years. Data released in China overnight saw February fixed-asset investment up 24.3% y/y in the two months to February.

STERLING

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9810 level and was capped around the $1.9975 level. Data released in the U.K. today saw January service sector output climb 0.6% m/m. Bank of England Governor King spoke today and reported policymakers cannot allow the U.K. economy to slow too much but also said the central bank cannot permit inflation expectations to persist too long. King reiterated the BoE sees inflation falling back to target in 2009 when commodity prices stabilize. Other data released today saw Q4 worker productivity climb 1.7% y/y while unit wage costs were up 2.7% y/y in Q4. Additionally, the U.K. government deficit registered 2.8% of GDP in 2007, up from 2.5% in 2006. It was also reported that Hometrack house prices were off 0.2% m/m, the sixth consecutive decline. Cable bids are cited around the US$ 1.9605 levels. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.7980 level and was supported around the ₤0.7895 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9870 level and was capped around the CHF 0.9990 level. Technically, today’s intraday high was right around the 23.6% retracement of the move from CHF 1.1105 to CHF 0.9645. The Swiss government today raised its 2008 inflation forecast to 1.7% from 1.6% and reduced its 2009 GDP growth forecast to 1.5% from 1.7%. 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 1.5665 and CHF 1.9650 levels, respectively.

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