Monday: Daily Forex Market Commentary

EURO

The euro moved lower vis-à-vis the U.S. dollar Monday as the single currency tested bids around the US$ 1.4695 level and was capped around the $1.4805 level. Technically, today’s intraday high and low were around the 38.2% and 76.4% retracement of the move from $1.4630 to $1.4910, respectively. The common currency was on the defensive for a couple of reasons.

First, U.S. July existing home sales were up 3.9% to an annualized 5.0 million rate, possible evidence the beleaguered U.S. housing sector may be reaching a bottom. Second, the International Monetary Fund downgraded its 2008 GDP growth forecast to 1.4% from 1.7% and trimmed its 2009 eurozone GDP growth forecast to 0.9% from 1.2%. Third, Denmark’s central bank rescued the country’s tenth largest bank, Roskilde Bank, in a US$ 896.8 million bailout. Even though the common currency does not include Denmark, there are ongoing concerns that eurozone commercial banks may have exposure to global credit market turmoil. Euro bids are cited around the US$ 1.4315 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar Monday as the greenback tested bids around the ¥109.55 level and was capped around the ¥110.30 level. The pair erased some of Friday’s gains as traders moved out of higher-yielding currencies and into yen and the Swiss franc. Bank of Japan Governor Shirakawa reported economic growth will likely remain “sluggish” on account of higher energy costs and dwindling export growth but added the economy is “unlikely to experience a deep adjustment phase.”

The Liberal Democratic Party reported Japan’s economic stimulus package may be worth ¥2-3 trillion and will be designed to offset the higher prices of oil and food. The Nikkei 225 stock index gained 1.68% to close at ¥12,878.66. 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 ¥161.85 level and was capped around the ¥162.55 level. The British pound and Swiss franc lost ground vis-à-vis the yen as the crosses tested bids around the ¥202.50 and ¥99.80 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8481 in the over-the-counter market, up from CNY 6.8333. The media is reporting the Chinese government is considering a CNY 370 billion economic stimulus package.

STERLING

The British pound gained marginal ground vis-à-vis the U.S. dollar Monday as cable tested offers around the US$ 1.8560 level and was supported around the $1.8405 level. The pair reached its lowest level since July 2006 as traders continued to scale back interest rate expectations and contemplated a broader economic slowdown in the U.K. Liquidity was thin on account of a U.K. public holiday and will return to normal tomorrow. Bank of England Monetary Policy Committee member Bean warned the U.K. economic slowdown will “drag on for some considerable time.” Cable bids are cited around the $1.8015 level.

The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7965 level and was capped around the ₤0.8005 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar Monday as the greenback tested bids around the CHF 1.0935 level and was capped around the CHF 1.1030 level. The pair came close to establishing a new multi-month high before paring back gains. U.S. dollar offers are cited around the CHF 1.1135 level.

The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6180 and CHF 2.0270 levels, respectively.

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