Daily Market Commentary - Fundamental Outlook

Daily Forex Fundamentals | Written by GCI Financial | Sep 01 08 14:49 GMT |

€

The euro weakened vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4595 level and was capped around the $1.4720 level. Technically, today's intraday high was right around the 76.4% retracement of the move from $1.4315 to $1.6040. The common currency moved lower after hurricane Gustav weakened in strength as it approaches the Gulf of Mexico, resulting in a pullback in crude oil prices to the $112 handle. There has been a strong positive correlation between the euro and the price of oil over the last several weeks. Data released in the eurozone today saw German July retail sales fall 1.5% m/m and was unchanged y/y. Also, EMU-15 manufacturing activity contracted for the third consecutive month in August, improving to 47.6 from 47.4 in July but still below the 50 level that denotes growth in the sector. European Central Bank policymakers convene Thursday and are expected to keep interest rates unchanged. Liquidity is expected to be light during the North American session on account of the U.S. Labour Day holiday. Euro bids are cited around the US$ 1.4315 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.60 level and was capped around the ¥108.65 level. The pair traded at its lowest level since 4 August as long positions built-up from the ¥103 handle in mid-July continue to unwind. Prime Minister Fukuda resigned overnight and will likely step down in the coming months. Early speculation suggests that Foreign Minister Taro Aso could assume the top position. An election was due by late 2009 but today's announcement suggests there could be a change in leadership before the end of the year. The Nikkei 225 stock index lost 1.83% to close at ¥12,834.18. Dollar bids are cited around the ¥106.40 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥157.55 level and was capped around the ¥159.60 level. The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥194.15 and ¥97.95 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8256 in the over-the-counter market, down from CNY 6.8350. Data released in China overnight saw the CFLP August manufacturing PMI survey remain unchanged at 48.4 while the CLSA August manufacturing PMI survey fell to 49.2.

₤

The British pound fell sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7990 level and was capped around the $1.8150 level. Technically, today's intraday low was just below the 76.4% retracement of the move from $1.7045 to $2.1160. Sterling continued its move lower after U.K. economic data were released that continued to evidence a weakening economy. Chancellor of the Exchequer Darling reported the U.K.'s economic difficulties are the worst the country has encountered in 60 years. Data released in the U.K. today saw Bank of England July mortgage approvals sink to 33,000, the lowest reading since April 1993. Also, the U.K. August CIPS manufacturing survey climbed to 45.9 from 44.1 in July but remained in a contractionary reading below the "boom-or-bust" 50.0 level. These data suggest the U.K. economy will recede in Q3. Bank of England's Monetary Policy Committee meets on Wednesday and Thursday to deliberate interest rates and is unlikely to change rates at this time on account of elevated inflation pressures. Many traders, however, believe the MPC will be forced to reduce interest rates before the end of the year. Other data released today saw Hometrack August house prices of 5.3% y/y while U.K. July net consumer credit increased to ₤1.1 billion. Cable bids are cited around the $1.7420 level. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the ₤0.8140 level and was supported around the ₤0.8090 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1045 level and was supported around the CHF 1.0945 level. Data released in Switzerland today saw the August manufacturing PMI survey slow to its lowest level in three years, dropping to 52.5 from 54.1 in July. Notably, cost pressures eased from July's thirteen-year high. Most traders believe Swiss National Bank's next interest rate move will be lower, possibly before the end of the year. 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 1.6055 and CHF 1.9760 levels, respectively.

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