Daily Market Commentary - GCI Financial

EURO

The euro gained marginal ground vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5675 level and was supported around the $1.5530 level. Technically, today’s intraday low was just below the 23.6% retracement of the move from $1.4440 to $1.5905. Federal Reserve Chairman Bernanke testified before Congress today and warned the U.S. economy may contract in the first half of the year but did not suggest the Fed will definitely reduce interest rates on 30 April. The May federal funds futures contract is implying about a 66% chance the Fed will reduce its fed funds target rate by 50bps to 1.75% at the 30 April Federal Open Market Committee meeting, and the likelihood of a 75bps reduction is around 45%. Data released in the U.S. today saw February factory orders off 1.3% while the ex-transportation component was off 1.8%. Likewise, orders for non-defense capital goods excluding aircraft were off 2.4% in February. Also, the ADP jobs report indicated the U.S. economy gained 8,000 private jobs last month, significantly above the expectation of 70,000 job losses. In eurozone news, EMU-15 February producer price inflation was up 0.6% m/m and up 5.3% y/y. European Central Bank member Weber reported is it “too early” to give an all-clear on the current financial crisis. Germany’s DIW institute lowered its 2008 German GDP forecast to 2.0% from its previous estimate of 2.1%. Euro bids are cited around the US$ 1.5345 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥102.75 level and was supported around the ¥101.50 level. The pair reached its highest level since 12 March as sentiment in the U.S. dollar continued to improve. The Japanese government reported Bank of Japan’s “basic thinking” on interest rates will be maintained. Data released in Japan overnight saw the March monetary base remained unchanged y/y at ¥88.39 trillion. Most traders believe BoJ’s Policy Board will keep monetary policy unchanged for the foreseeable future. The Nikkei 225 stock index gained 4.21% to close at ¥13,189.36. Dollar offers are cited around the ¥103.65 level. The euro appreciated vis-à-vis the yen as the single currency tested offers around the ¥160.45 level and was supported around the ¥158.55 level. The British pound and Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥203.75 and ¥101.25 levels, respectively. In Chinese news, the yuan’s central parity rate vis-à-vis the U.S. dollar was set at CNY 7.0292, up from CNY 7.0218. U.S. Treasury Secretary Paulson continues his meetings in Beijing this week. The Chinese government reiterated People’s Bank of China “will implement a tight monetary policy in 2008.”

STERLING

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9840 level and was supported around the $1.9745 level. Technically, today’s intraday low was just below the 23.6% retracement of the move from $2.1160 to $1.9335. There is a debate between traders as to whether Bank of England will reduce its repo rate by 25bps or 50bps next week while others do not believe the Monetary Policy Committee will lower rates until May. Many data were released in the U.K. today. First, Bank of England reported that February mortgage approvals rose by 73,000, just off from 74,000 in January. Second, net mortgage lending growth was flat in February. Third, total net consumer lending grew ₤8.9 billion in February, up from a revised ₤8.3 billion in January. Fourth, BoE reported Q4 housing equity withdrawal fell to ₤7.3 billion from ₤10.8 billion in Q3. Fifth, CIPS March construction PMI fell to 47.2, the first contraction in six years. Sixth, February final M4 money supply growth fell 0.2% m/m, the lowest decline since June 2005. Cable bids are cited around the US$ 1.9605 levels. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7850 level and was capped around the ₤0.7905 level.

SWISS

The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0165 level and was supported around the CHF 1.0080 level. Swiss National Bank member Jordan reported the global financial market crisis hasn’t subsided yet and will continue for some time, adding monetary policy has limits. U.S. dollar offers are cited around the CHF 1.0375 level. The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5855 and CHF 2.0125 levels, respectively.

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