Wednesday: Daily Forex Commentary

GCI Financial
updated | Author's Website

Euro

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4845 level and was capped around the $1.4980 level. Technically, today’s intraday high was right around the 61.8% retracement of the move from $1.4310 to $1.6040. Data released in the U.S. today saw July retail sales off 0.1%, the first decline in five months. Also, July import prices were up 1.7% m/m, down from a revised 2.9% in June, and were up 21.6%, the fastest pace in nearly three decades. These data evidence the continuing dilemma faced by Federal Reserve policymakers who must reconcile a slowing economy with heightened inflation pressures.

Other data released today saw June business inventories up 0.7%, the largest gain since January, and were up 5.6% y/y. Dallas Fed President Fisher said the U.S. economy could face a prolonged period of “anemia” with GDP growth approaching 0% in the second half of 2008. Richmond Fed President Lacker warned that slowing economic growth will not reduce inflation appreciably.

In eurozone news, the EMU-15 Ifo quarterly climate index fell to 61.9 in Q3 from 76.3 in Q2 with pullbacks in the current economic situation and expectations sub-indices. Germany’s IG Metall Union will seek pay increases that are 6.5% higher than their previous demands. The German media reported German Q2 GDP contracted 0.5% to 0.7% q/q. Euro bids are cited around the US$ 1.5175 levels.

Japanese Yen/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥108.35 level and was capped around the ¥109.35 level. Traders dumped higher-yielding currencies for yen overnight. Data released in Japan overnight saw the June current account surplus fall 67.4% y/y, the fourth consecutive monthly decrease. Exports data revealed gross exports decline for the first time in thirteen quarters in the past quarter and this resulted in the first contraction in economic growth in the April – June period. Finance minister Ibuki reported Japanese exports are in a severe condition and reiterated the economy is facing cost-push stagflation. The Nikkei 225 stock index lost 2.11% to close at ¥13,023.05. Dollar bids are cited around the ¥106.40 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥161.35 level and was capped around the ¥163.05 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥202.55 and ¥99.70 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8570 in the over-the-counter market, down from CNY 6.8632. Data released in China today saw July retail sales climb 23.3% y/y to CNY 862.9 billion. Also, the end-July M2 money supply was up 16.35%.

British Pound

The British pound fell appreciably vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8640 level and was capped around the $1.9035 level. Technically, today’s intraday low was right around the 61.8% retracement of the move from $1.7045 to $2.1160. The impetus for the move lower was a dovish Bank of England quarterly Inflation Report and accompanying press conference from BoE policymakers. BoE predicted inflation will fall back to target and added the U.S. economy faces a recession. BoE Governor King reported there will likely be one or two quarters of negative economic growth in the U.K, citing it “painful” and “difficult.” Deputy Governor Bean indicated GDP growth will improve in 2009. King added the MPC will take the “action necessary” to bring inflation back to target. In fact, the BoE sees U.K. CPI growth peaking at 4.8% by Q4. Other data saw the July claimant count of jobless persons rise by 20,100, the sixth consecutive monthly rise. Cable bids are cited around the $1.8615 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7975 level and was supported around the ₤0.7850 level.

Swiss Franc

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0820 level and was capped around the CHF 1.0920 level. The pair came within a few pips of establishing a new lifetime high dating to 25 February. U.S. dollar offers are cited around the CHF 1.1135 level. The euro and British pound moved lower vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6155 and CHF 2.0265 levels, respectively.

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