Daily Market Commentary - Fundamental Outlook

Daily Forex Fundamentals | Written by GCI Financial | Oct 09 08 14:59 GMT |

€

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3785 level and was supported around the $1.3580 level. The common currency continued its steady comeback this week as traders cautiously limited their exposure to new U.S. dollar longs. Overnight U.S. dollar rates remain elevated and traded around 3.6%, well above the Federal Reserve's new 1.5% target rate for federal funds. Three-month dollar rates remain elevated around 6.41%. The big news in the U.S. today involves reports the U.S. Treasury is considering taking ownership in many financial institutions in a bid to restore confidence in them. Data released in the U.S. today saw weekly initial jobless claims fall 20,000 to 478,000 while continuing claims rose to 3.659 million. Also, August wholesale inventories were up 0.8%. In eurozone news, the European Central Bank called on European Union countries to implement a coordinated approach to promoting financial stability. The ECB also reported eurozone inflation risks have decreased further. Notably, the central bank has taken significant steps including reducing the premium it charges banks for emergency overnight borrowing, lifting the amount it pays on overnight deposits, and offering unlimited weekly funds at a fixed rate. ECB's Bini Smaghi indicated the central bank may reduce its 2009 GDP growth forecast. The key three-month Euribor rate was unchanged at 5.393%, its highest level since late 1994. Data released in German today saw the August trade surplus widen even though exports fell by 2.5% y/y, the largest decline in five years. Also, German September wholesale prices were off 0.6% m/m and up 5.8% y/y. Euro bids are cited around the US$ 1.3320 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥101.40 level and was supported around the ¥98.90 level. The pair gained back some of yesterday's sizable losses as financial markets stabilized to some extent overnight. Liberal Democratic Party officials are seeking a package of measures by month's end to content with the financial crisis. Prime Minister Aso has suggested the government may consider an additional fiscal stimulus to help bailout and stabilize the economy. The government has already approved an initial US$ 18 billion package of economic stimulus measures. Finance minister Nakagawa said he “highly appreciates” global central banks' rate cuts yesterday. Data released in Japan overnight saw August core private sector machinery orders fall 14.5%, a very negative indication about spending and a harbinger of a possible recession. The Nikkei 225 stock index lost 0.50% to close at ¥9,157.49. 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 ¥139.70 level and was supported around the ¥134.90 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥176.20 and ¥90.20 levels, respectively. The Chinese yuan came off vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8205 in the over-the-counter market, up from CNY 6.8171.

₤

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.7395 level and was supported around the $1.7165 level. Sterling regained some lost ground followings moves by Bank of England to help stabilize the financial system. Bank of England injected billions of dollars in short-term U.S. dollar funds into the system today to try and bring down interbank lending rates. Data released in the U.K. today saw the U.K. goods trade deficit narrow to -₤8.198 billion and July's gap was revised to the worst level since 1697. Also, Halifax reported September house prices fell 1.3% m/m and house prices were off 12.4% y/y in the three months to September – the sharpest decline since 1983. Three-month sterling deposit rates are around 6.4%. Cable bids are cited around the $1.7045 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7955 level and was supported around the ₤0.7860 level.

CHF

The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1340 level and was supported around the CHF 1.1230 level. Swiss National Bank offered one-week funds at 1.25%, one day after the central bank cut rates by 50bps. U.S. dollar offers are cited around the CHF 1.1800 figure. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5505 and CHF 1.9675 levels, respectively.

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