Monday: Daily Forex Market Commentary

Euro

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2895 level and was supported around the $1.2720 level.  The European Commission today reported the eurozone is in a technical recession and estimates economic growth will be around nil in 2009.  EMU-15 policymakers called for coordinated action to stimulate economic growth. The German government is expected to unveil a €30 billion fiscal stimulus tomorrow.  EMU-15 banks deposited a record €280 billion with the European Central Bank today instead of lending it to other banks.  Interbank lending rates continue to moderate, suggesting some of the financial crisis may be abating.  Data released in the eurozone today saw October EMU-15 manufacturing PMI fall to 41.1.  Group of 20 finance chiefs convene in Brazil later this week to prepared for a summit of global leaders on 15 November that is being hosted by the U.S.  EMU-15 finance ministers meet today and tomorrow.  The ECB is expected to cut rates this week, possibly by as much as 50bps.

In U.S. news, Richmond Fed President Lacker reported the U.S. economy is in a recession.  Data released in the eurozone today saw September construction spending off 0.3% m/m while October ISM manufacturing fell to 38.9 from 43.5 in September.  Euro bids are cited around the US$ 1.2135 level.

Japanese Yen

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥99.65 level and was supported around the ¥98.20 level.  On Friday, Bank of Japan’s Policy Board reduced the overnight call rate by 20bps to 0.30%, a smaller-than-expected decrease.  Policymakers were evenly split on the move and BoJ Governor Shirakawa cast the deciding vote.  This represented the first time in seven years the central bank has eased monetary policy.  The central bank also reported on Friday that it will pay an annual 0.1% interest rate on excess current account deposits held by financial institutions between November and March 2009.  Additionally, the central bank now sees real GDP around 0.1% for the fiscal year ending in March 2009, down from the previous estimate of 1.2%.  Minutes from the October Policy Board meeting will be released on Thursday.   The Nikkei 225 stock index lost 5.01% to close at ¥8,576.98.  U.S. dollar offers are cited around the ¥104.15 level. 

The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥128.45 level and was supported around the ¥125.40 level.  The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥156.35 and ¥84.55 levels, respectively. 

The Chinese yuan appreciated vis-à-vis the U.S. dollar as the single currency closed at CNY 6.8380 in the over-the-counter market, down from CNY 6.8395.  Data released in China today saw October manufacturing PMI fall to a record low of 45.2.  A government report estimates the yuan will appreciate by about 1% to 2% in 2009.

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