Daily Market Commentary - Fundamental Outlook

Daily Forex Fundamentals | Written by GCI Financial | Nov 19 08 15:43 GMT |

€ The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2770 level and was supported around the $1.2590 level. The common currency moved to intraday highs during the early North American session as traders braced for more potential selling pressure in U.S. equity markets. Traders are closely monitoring the progress of Congressional talks involving the largest U.S. auto-makers who are appealing for a bailout of their cash-strapped, beleaguered industry. The Bush administration remains reluctant to steer some of the US$ 700 billion in bailout funds it partially controls to the industry and it is not clear if the U.S. Senate has the muscle to push through related legislation. Data released in the U.S. today saw October headline consumer price inflation up 1.0% m/m while the core rate was off 0.1% m/m. On an annualized basis, CPI was up 3.7% y/y with the core rate up 2.2% y/y. These data evidence the ongoing moderation in consumer-level price pressures in the U.S. and give the Federal Open Market Committee more room to ease monetary policy next month. Other data released today saw October housing starts off 4.5% to an annualized 791,000 while October building permits were off 12% to 708,000. Traders await remarks from Fed officials Kohn and Lacker today along with FOMC meeting minutes. In eurozone news, European Central Bank President Trichet reiterated the resolution of the ongoing financial crisis “will take time.” Euro bids are cited around the US$ 1.2135 level. ¥/ CNY The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥96.30 level and was capped around the ¥97.15 levels. The yen continues to benefit from traders' views that the global economy is sinking deeper into a recession and that the liquidity crisis has moved to different industries such as the U.S. auto-making industry. Data released in Japan overnight saw the September all-industries index fall 0.1% m/m, matching forecasts. Japanese financial giant Sumitomo announced it plans to raise at least US$ 2.9 billion via preferred securities to strengthen its capital base, much as its two larger competitors have done. Earlier in the liquidity crisis, Japanese banks were perceived to be in decent shape but Japan's economy has entered a recession. Most traders expect Bank of Japan's Policy Board to keep its unsecured call rate unchanged at 0.30% this week with some expecting the central bank to announced additional measures to enhance liquidity provision to the financial system. The Nikkei 225 stock index lost 0.66% to close at ¥8,273.22. 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 ¥123.45 level and was supported around the ¥121.45 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥146.95 level while the Swiss franc lost ground vis-à-vis the yen and tested bids around the ¥79.90 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8285 in the over-the-counter market, up from CNY 6.8284. Some economists are predicting China's economy could experience deflation next year and this will lead to increased speculation about an easier monetary policy from People's Bank of China. ₤ The British pound moved sharply higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5230 level and was supported around the $1.4900 figure. Traders expressed surprise after minutes from Bank of England's November Monetary Policy Committee meeting were released. The minutes revealed MPC policymakers considering reducing interest rates by more than 200bps this month before unanimously voting for a 150bps cut to 3.0%. The 150bps reduction represented the U.K.'s largest rate cut since 1981. Many dealers expect more rate cuts because the quarterly inflation report that was subsequently published implied a larger reduction in the official Bank Rate - probably in excess of 200bps. Many MPC-watchers expect up to 100bps of additional easing by the central bank next month. Data released in the U.K. today saw CBI November manufacturing output fall to a balance of -42 from -31 in October, the lowest level since September 1980. Cable bids are cited around the US$ 1.4315 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8365 level and was capped around the ₤0.8465 level. CHF The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1960 level and was capped around the CHF 1.2085 level. Swiss National Bank allotted €1.8 billion in a foreign exchange swap today with eurozone central banks. SNB bought euro in the near leg and sold euro in the far leg. U.S. dollar offers are cited around the CHF 1.2120 level. The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5330 and CHF 1.8245 levels, respectively. GCI Financial http://www.gcitrading.com DISCLAIMER : GCI's Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.