Daily Forex Market Commentary

EURO

The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5535 level and was capped around the $1.5615 level. Most traders expect the Federal Open Market Committee will keep the overnight call rate unchanged at 2.00% today and signal that inflation poses more of a threat than a slowdown in economic growth. Some traders believe the FOMC will move rates higher this year while others believe the Fed will take a wait-and-see approach before adjusting borrowing costs. The Fed is also expected to acknowledge the beleaguered U.S. housing sector, ongoing credit market dislocations, and weakness in the employment sector. Data released in the U.S. today May durable goods orders unchanged m/m and off 0.1% y/y while the ex-transportation component was of 0.9% m/m. Also, May building permits were revised to -0.4% from -1.3% and May new home sales were off 2.5% to a 512,000 unit annualized pace. In eurozone news, the European Central Bank announced it will hold a press conference after its 7 August Governing Council meeting. The ECB traditionally holds a telephone conference after some summer rate-setting meetings and this has led to speculation that the presumed +25bps rate hike to 4.25% in July will not be a one-off move. ECB’s Wellink reported Dutch inflation may top 3% in Q3 while ECB President Trichet reiterated he does not “envisage a series of increases (in official interest rates).” ECB’s Noyer reported “Issuance of credit remains dynamic and there is no concrete threat of a (further) credit crunch.” Data released in the eurozone today saw EMU-15 April factory orders up 2.5% m/m and 11.7% y/y, the fastest growth pace in six months. Euro bids are cited around the $1.5230 level.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.05 level and was supported around the ¥107.65 level. Traders continued to buy U.S. dollars ahead of today’s interest rate decision from the Federal Open Market Committee. Technically, today’s intraday low was right around the 38.2% retracement of the move from ¥108.55 to ¥107.10. Data released in Japan today saw the May merchandise trade surplus shrink for the third consecutive month, printing at ¥365.61 billion and off 7.6% y/y. Traders are curious to see how these data impact the April – June GDP data that are due in early August. Other data released last night saw the May corporate services price index climb +0.2% m/m and 0.6% y/y, the eighteenth consecutive monthly increase. The Nikkei 225 stock index lost 0.14% to close at ¥13,829.92. Dollar bids are cited around the ¥103.00/ 101.35 levels. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥168.45 level and was supported around the ¥167.60 level. The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥213.20 and ¥103.95 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8653 in the over-the-counter market, down from CNY 6.8699 and the pair’s lowest close since the yuan revaluation of July 2005. It was reported that China’s foreign reserves totaled US$ 1.76 trillion at the end of April.

STERLING

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9660 level and was capped around the $1.9745 level. Sterling could not maintain intraday gains notched after it was reported that the CBI June retail sales survey found 39% of respondents said H1 June sales were lower than one year ago while 30% indicated they improved, for an ensuing net balance of -9% - up from -14% in May and better than expected. These data suggest retail sales remain relatively weak. Bank of England Deputy Governor Gieve reported he expects a “downturn in economic activity over the rest of the year.” On the political front, London’s High Court rejected a legal move to force the British government to hold a referendum on the European Union’s Lisbon Treaty. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7920 level and was supported around the ₤0.7890 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0435 level and was supported around the CHF 1.0375 level. U.S. dollar bids are cited around the CHF 1.0250 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6235 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 2.0470 level.

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