Daily Forex Market Commentary

EURO

The euro lost marginal ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5720 level and was capped around the $1.5815 level. The common currency extended some of yesterday’s intraday losses as traders continue to position themselves ahead of Thursday’s interest rate decision by the European Central Bank in which policymakers are expected to life the main refinancing rate by 25bps to 4.25%. The big question on traders’ minds is whether or not the ECB will continue to raise rates this year, especially as provisional June harmonized consumer price inflation data printed at 4.00% for the entire eurozone, double the ECB’s 2.0% ceiling target. Data released in the eurozone today saw the May jobless rate steady at 7.2% with Germany’s jobless rate steady at 7.4%. Germany’s DIW institute lifted its German 2008 GDP growth forecast to 2.7% from 2.0%. The common currency backpedaled after it was reported that EMU-15 June manufacturing contracted for the first time in three years as inflation pressures mounted. Germany’s June PMI survey came in above forecast at 52.6.

In U.S. news, the June ISM manufacturing index increased to 50.2 from 49.6 in May while the prices sub-index soared to 91.5 from 87.0, their highest reading since July 1979. There were pullbacks in the June new orders and employment sub-indices. Euro bids are cited around the $1.5645/ $1.5230 levels.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥105.25 level and was capped around the ¥106.40 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from ¥102.65 to ¥108.55. The pair weakened after it was reported that Bank of Japan’s quarterly Tankan survey of manufacturing sentiment came in better-than-expected. The large manufacturers’ sentiment index fell to 5 in June from 11 in May, the lowest reading since September 2003, but this result was higher than expected. Also, business executives who were polled expect the dollar’s exchange rate to average ¥102.74 in the fiscal year to March 2009, down from the previous estimate of ¥109.21 in December. Other data released today saw May employees’ average pray rise 0.2% while average land prices were up 10% in 2007, the third consecutive annual rise. The Nikkei 225 stock index lost 0.13% to close at ¥13,463.20. Dollar bids are cited around the ¥103.00/ 101.35 levels.

The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥166.15 level and was capped around the ¥167.35 level.

The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥210.00 and ¥103.50 levels, respectively.

The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at the CNY 6.8567 in the over-the-counter market, up from CNY 6.8543. Chinese Premier Wen called on the U.S. to “stabilize” the U.S. dollar. Data released in China tonight saw the June CLSA PMI survey fall to 53.3 while the June CFLP PMI survey receded to 52.0.

STERLING

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0005 level and was supported around the $1.9885 level. Technically, today’s intraday high and low were right around the 61.8% and 50.0% retracements of the move from $2.0395 to $1.9360, respectively. Data released in the U.K. today saw the June PMI manufacturing survey fall to 45.8 from 49.5 in May, further evidence of a contraction in the sector. Traders await Thursday’s PMI services data to see if there is further evidence of deterioration. Sterling also came off when it was reported that Nationwide June house prices were off 0.9% m/m and 6.3% y/y. Cable bids are cited around the US$ 1.9360/ 1.9100 levels.

The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7915 level and was supported around the ₤0.7870 level.

SWISS

The Swiss franc appreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0135 level and was capped around the CHF 1.0225 level. Technically, today’s intraday low was right around the 50% retracement of the move from CHF 0.9645 to CHF 1.0625. Data released in Switzerland today saw the June PMI survey receded to a three-year low around 54.9, down from 55.7 in May. Some traders believe Swiss National Bank will be forced to tighten monetary policy this year because inflation stands at 2.9%, above the 2.0% target rate. U.S. dollar bids are cited around the CHF 1.0020 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6015 and CHF 2.0235 levels, respectively.

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