Wednesday: Daily Market Commentary

EURO

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5885 level and was supported around the $1.5775 level. The common currency reached its highest level since 24 April as traders positioned themselves ahead of tomorrow’s interest rate decision and press conference from the European Central Bank. Most traders expect the ECB will lift its main refinancing rate target by 25bps to 4.25% and the real question involves what exactly ECB President Trichet will say after the decision is announced. ECB policymakers have recently intimated tomorrow’s likely hike will probably be a one-off tightening but recent inflation data in the eurozone has only gotten hotter and changes are increasing that the ECB will have to move again before the end of the year. Data released in the eurozone today saw EMU-15 producer price inflation at an eighteen-year high in May, up 1.2% m/m and 7.1% y/y. Other data saw May new machinery, plant orders off 12% y/y. In U.S. news, the dollar also suffered after ADP reported June private payrolls fell 79,000, much worse than expected. This print has resulted in some revisions to tomorrow’s June non-farm payroll forecast that had many economists forecasting a loss of about 50,000 jobs last month. Other data saw May factory orders climb 0.6%, down from +1.3% in April, with the ex-transportation component slowing to +0.4%. Atlanta Fed President Lockhart reported he expects Q2 GDP growth to be “substantially” above Q1’s pace of 1.0%. 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 ¥105.75 level and was capped around the ¥106.75 level. Nikkei reported Bank of Japan is expected to reduce its economic assessment for the current fiscal year to March 2009 on account of a decelerating economy and escalating prices. BoJ’s Policy Board will convene on 14-15 July and will also release its semi-annual outlook on the economy and prices and is likely to highlight “downside” risks to current projections. The BoJ is also expected to acknowledge prices may continue higher. Data released in Japan overnight saw the June monetary base up 0.4% y/y. The Nikkei 225 stock index lost 1.31% to close at ¥13,286.37. 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 ¥168.60 level and was supported around the ¥167.30 level. The British pound came off vis-à-vis the yen as sterling tested bids around the ¥210.80 level and was capped around the ¥212.05 level. The Swiss franc moved higher vis-à-vis the yen as the pair tested offers around the ¥104.55 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8530 in the over-the-counter market, down from CNY 6.8567 and the pair’s lowest close since the yuan revaluation of July 2005. Data released in China overnight saw the May consumer confidence index rise to 94.3 from 94.0 in April.

STERLING

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9845 level and was capped around the $1.9975 level. Technically, the pair tested bids below the $1.9865 level, representing the 23.6% retracement of the move from $1.9405 to $2.0005. Data released in the U.K. today saw June construction PMI fall to 38.8 from 43.9 in May, evidence the sector has declined at its fastest pace since at least 1997. Other data saw Bank of England’s measure of house equity withdrawal fall to its lowest level since Q1 2001 at ₤5.0 billion. Cable bids are cited around the US$ 1.9360/ 1.9100 levels. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7970 level and was supported around the ₤0.7915 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. U.S. dollar bids are cited around the CHF 1.0020 level. The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6150 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 2.0205 level.

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