U.S. 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$ 1.4630 level and was supported around the $1.4520 level.  Technically, today’s intraday high was right around the 50% retracement of the recent pullback from $1.4750 to $1.4520.  The common currency shrugged off data that saw the German November ZEW expectations index fall to a fifteen-year low of -32.5 from -18.1 in October, much worse-than-expected.  The decline in sentiment evidences concerns over the euro’s relative strength, elevated oil prices, and concerns over the U.S. economy.  Concerns over this summer’s global credit turmoil have not completely abated in Europe.  The European Central Bank expected a liquidity imbalance of €37 billion and only received bids to absorb €27.75 billion from banks, evidencing financial institutions’ desire to retain extra liquidity.  Other data released saw French October CPI accelerate to an eighteen-year high, up 0.2% m/m and 2.0% y/y while EMU-13 September industrial output was off 0.7% m/m and up 3.5% y/y.  In U.S. news, September pending home sales reached an all-time low. Many traders believe the FOMC will reduce the federal funds target rate by another 25bps next month with a similar move at the end of January.  Euro bids are cited around the US$ 1.4470/ 1.4385 levels.
 
JPY / CNY
The yen lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥110.50 level and was supported around the ¥109.20 level.  The pair consolidated some of its losses from recent trading sessions.  As expected, BoJ’s Policy Board kept the overnight call rate unchanged at +0.50% by a vote of 8-to-1 with Governor Fukui reported “If adjustments in the U.S. housing market worsen and negatively affect private consumption and capital investment, the global economy would deteriorate.”  The BoJ also kept its economic assessment unchanged for November.  The big news in Japan overnight was a warning from Prime Minister Fukuda that the yen is appreciating “too fast” and warned speculators to “be careful,” hinting that intervention may be possible otherwise.  Most dealers do not believe the MoF would intervene around current levels.  Data released in Japan overnight saw GDP expand 0.6% q/q in Q3, above expectations.  The Nikkei 225 stock index lost 0.46% to close at ¥15,126.63.  Dollar bids are cited around the ¥106.95 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥161.30 level and was supported around the ¥158.65 level.  The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥161.30 and ¥228.95 levels, respectively.  The Chinese yuan fell sharply vis-à-vis the U.S. dollar as the greenback closed at CNY 7.4335 in the over-the-counter market, up from CNY 7.4123.  Data released in China overnight saw October CPI up 6.5% y/y.  Most traders believe PBoC will tighten monetary policy again before the end of the year.

STERLING
The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0760 level and was supported around the $2.0520 level.  Technically, today’s intraday low was right around the 50% retracement of the move from $1.9870 to $2.1160.  Sterling moved higher after the release of October CPI data that saw the annual inflation rate rise to 2.1% from 1.8% in September, above expectations. These data follow yesterday’s strong factory gate PPI data and render it highly unlikely Bank of England will be able to ease monetary policy next month.  The central bank must deliberate between slowing economic growth and resurgent inflationary pressures.  Core inflation was up 0.3% m/m and 1.5% y/y. Other data released today saw the U.K. October RICS house price balance at -22.2%, its largest negative reading since July 2005.  Also, CML September mortgage lending declined in September with gross lending lower at £30.6 billion and the number of house purchase loans lower. Cable bids are cited around the US$ 2.0585 level.  The euro weakened vis-à-vis the British pound as the single currency tested bids around the £0.7035 level and was capped around the £0.7085 level.

CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1225 level and was capped around the CHF 1.1295 level.  The pair lost ground as global risk aversion decreased from elevated levels during the past couple of trading sessions.  The November ZEW survey will be released on Thursday.  U.S. dollar offers are cited around the CHF 1.1355 level.  The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6450 and CHF 2.3345 levels, respectively.