U.S. Forex Market Commentary

EURO

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4670 level and was supported around the $1.4580 level.  Technically, today’s intraday high was right around the 38.2% retracement of the move from $1.4520 to $1.4725.  The U.S. dollar was given today on account of data that confirmed foreign investors were wary of investing in the U.S. in September after the summer’s credit market turmoil.  TICS total net flow of foreign capital was –US$ 14.7 billion in September, an improvement from the –US$ 150.7 billion decline in August.  September long-term capital flows printed at US$ 5.8 billion, up from a revised –US$ 86.7 billion in August.  Actual net foreign purchases (ex-foreign purchases by U.S. investors) totaled US$ 26.4 billion, up from –US$ 70.6 billion in August and below expectations.  These data confirm the U.S. is not financing its current account deficit with foreign portfolio inflows and this is pressuring the U.S. dollar.  Other data released in the U.S. today saw October industrial production off 0.5% while capacity utilization was off 0.5% to 81.7%.  Federal Reserve officials spoke yesterday and today, offering their current economic assessments. Fed Governor Kroszner reported “A sequence of data releases consistent with the rough patch for economic activity that I expect in coming months would not, by themselves, suggest to me that the current stance of monetary policy is inappropriate.” Kroszner added he believes economic data will continue to be “downbeat” and sees home sales “weakening further” but added developments in core inflation have been moving in a “favourable direction.” Kansas City Fed President Hoenig said he sees GDP growth of 2.0% in 2008.  U.S. Treasury Secretary Paulson reiterated the U.S. has a “strong dollar policy.”  In eurozone news, the EMU-13 trade surplus widened in September to €3.1 billion, above August’s €1.9 billion surplus.  Other data released today saw the EMU-13 Ifo business climate index fall to 90.7, its lowest reading since Q4 2006.  Euro bids are cited around the US$ 1.4575/ 1.4470 levels.

JPN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥110.85 level and was supported around the ¥109.75 level.  The pair retraced some of yesterday’s losses and technically, today’s intraday low was right around the 76.4% retracement of the move from ¥109.10 to ¥111.75.  Traders are paying close attention to this weekend’s G-20 summit in Cape Town where global officials are expected to discuss exchange rates.  The G-20 may call on Asian countries to permit their currencies to appreciate faster.  Data released in Japan today saw the September index of leading economic indicators print at +0 in September while the coincident index was revised to +60.0 in September.  Minutes from BoJ’s October Policy Board meeting were released today and policymakers reiterated interest rates need to increase “gradually.” Many traders do not believe the central bank will lift the overnight call rate from its current 0.50% level until after the current fiscal year ends in March 2008.  The Nikkei 225 stock index lost 1.57% to close at ¥15,154.61.  Dollar bids are cited around the ¥109.75 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥162.40 level and was supported around the ¥160.45 level.  The British pound and Swiss franc appreciated vis-à-vis the yen as the crosses tested offers around the ¥226.95 and ¥99.15 levels, respectively.  The Chinese yuan weakened vis-à-vis the U.S. dollar as the greenback closed at CNY 7.4258 in the over-the-counter market, up from CNY 7.4228.  Data released in China today saw fixed-asset investment up 26.9% in the January – October period. 

STERLING

The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0500 figure and was supported around the $2.0350 level.  Technically, today’s intraday low was right around the 50% retracement of the move from $1.9650 to $2.1160 level.  Nationwide reported house price inflation should recede to 0% by November 2008 and this follows a week of weaker economic data in the U.K. and a dovish quarterly inflation report.  Funding conditions in the U.K. continue to deteriorate as the three-month Libor is now 6.40% with the overnight market rate at 5.86%.  Most traders believe the BoE’s MPC will reduce interest rates in 2008 and possibly as early as next month.  Cable bids are cited around the US$ 2.0365 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.7170 level and was supported around the £0.7140 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1165 level and was capped around the CHF 1.1245 level.  Swiss National Bank President Roth spoke today and said “A continued weakening of the franc versus the euro would pose problems for us.” Roth also indicated he sees a higher inflation risk and lower growth potential.  Many traders believe the SNB will tighten monetary policy further next month.  Data released in Switzerland today saw September retail sales up 3.0% y/y.  U.S. dollar offers are cited around the CHF 1.1355 level.  The euro and British pound depreciated vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6345 and CHF 2.2825 levels, respectively.

AUD/NZD

The Australian dollar appreciated vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8940 level and was supported around the $0.8815 level.  Technically, today’s intraday low was just below the 76.4% retracement of the move from $0.8750 to $0.9070.  Australian dollar bids are cited around the US$ 0.8535 level.  The New Zealand dollar appreciated vis-à-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.7620 level and was supported around the $0.7520 level.  New Zealand dollar bids are cited around the US$ 0.7415 level.

CAD

The Canadian dollar appreciated sharply vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 0.9715 level and was capped around the C$ 0.9885 level.  U.S. dollar offers are cited around the $0.9960 level.