Daily Market Commentary

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4010 level and was capped around the US$ 1.4180 level.  The common currency reached its lowest level since 20 September 2007 as traders reacted to a variety of factors.  First, troubled U.S. investment banking giant Lehman Brothers accelerated its earnings release and was trading higher than yesterday’s close of US$ 7.79.  Second, Eurogroup chairman Juncker said there is a risk of a “technical recession” in the eurozone.  Third, EMU-15 finance ministers and central bank governors will meet in Nice on Friday and Saturday and their agenda has changed so policymakers can address the abrupt slowdown in European economies. Fourth, the European Commission slashed its 2008 eurozone growth forecast to 1.3%, half of 2007’s growth rate of 2.6%. Fifth, European Central Bank President Trichet acknowledged the eurozone is facing a slowdown in economic growth.  Data released in the eurozone today saw French July industrial production climb 1.2% m/m. Traders await July trade balance data tomorrow in the U.S. along with weekly jobless claims data.  Euro bids are cited around the US$ 1.3840 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥107.95 level and was supported around the ¥106.60 level.  Technically, today’s intraday low was right around the 38.2% retracement of the move from ¥124.13 to ¥95.70.  Data released in Japan overnight saw August wholesale inflation remain near a 27-year high as the corporate goods price index rose 7.2% m/m and the core consumer price index rose 2.4% y/y.  Other data saw the July current account surplus fall 17.3% y/y.  Traders await the release of April-June GDP data on Friday and many economists expect a larger economic contraction than previously thought.  Other data saw the July coincident indicator index climb +0.9 points.  The Nikkei 225 stock index lost 0.44% to close at ¥12,346.63.  Dollar bids are cited around the ¥103.20 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥152.50 level and was supported around the ¥150.15 level.  The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥190.10 and ¥95.45 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8385 in the over-the-counter market, up from CNY 6.8381.  Data released in China today saw August consumer price inflation up 4.9% y/y while August producer price inflation was up 10.1% y/y. Also, actual foreign direct investment was up 41.6% y/y at US$ 67.73 billion between January and August and the August trade surplus stood at a record US$ 28.69 billion in August.

£

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7540 level and was capped around the $1.7675 level.  Cable traded at its lowest level since April 2006.  NIESR reported the U.K. economy contracted 0.2% in the three months to August after contracting 0.1% in the three months to July.  Also, the U.K.’s global goods deficit shrank to -£7.7 billion in July from a revised -£8.0 billion in June.  Bank of England Monetary Policy Committee member Gieve reported “At 4.4 percent it certainly hasn't peaked yet. We're expecting it to rise further in the next month or two and probably to stay there for several months.  Our latest forecast in August did show a period of flat output for most of the coming year, and certainly this is a sharp slowdown. But it's what we're expecting and what is required given the current level of inflation at 4.4 per cent. We've got to make sure this is a spike, a temporary move, and that inflation does come down next year towards target. But on the other hand we're very aware of the risk of perhaps overdoing it and causing an unnecessary slowdown in activity."  Cable bids are cited around the $1.7420 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.7985 level and was capped around the £0.8040 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1365 level and was supported around the CHF 1.1240 level.  Swiss National Bank directorate member Jordan reported Switzerland’s mortgage market has avoided a credit crunch.  SNB is expected to keep its target rate for three-month Swiss franc LIBOR unchanged at 2.75% on 18 September.  U.S. dollar offers are cited around the CHF 1.1390 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5985 and CHF 1.9945 levels, respectively.