Daily Market Commentary

Fundamental Outlook at 1400 GMT (EST + 0400)

€

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5395 level and was capped around the $1.5485 level.  Technically, today’s intraday low was right around the 38.2% retracement of the move from $1.4430 to $1.6020.  Technically, today’s intraday low was right around the 61.8% retracement of the move from $1.5285 to $1.5570.  Data released in the U.S. today saw April consumer price inflation rise 0.2% while core inflation was up a mere 0.1%, below forecasts. On an annualized basis, overall inflation was up 3.9% y/y and core inflation was up 2.3% y/y, the slowest pace since August.  Even though core inflation remains above the Federal Reserve’s perceived 2.0% upper comfort ceiling, they indicate a recent moderation in price pressures. San Francisco Fed President Yellen said recent inflation data have been “disappointing” and added rising food and energy prices “could lead to higher inflation expectations and an erosion of our credibility.”  Today’s inflation data may give the Federal Reserve a little bit of additional room to ease monetary policy if it deems fit.  Former Fed Chairman Greenspan last night said U.S. house prices should bottom out by early 2009.  It was reported that U.S. April foreclosures rose 4% to 243,353, up 64% y/y.  In eurozone news, EMU-15 industrial output was off 0.2% m/m and up 2.0% y/y.   French finance minister Lagarde talked about exchange rates saying the market “better understood” the Group of Seven’s message on exchange rates from 11 April regarding the overvaluation of the euro.  Eurogroup chairman Juncker said Ecofin finance ministers welcome the euro’s recent depreciation.  Euro bids are cited around the US$ 1.5230 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.40 level and was supported around the ¥104.55 level.  Technically, today’s intraday high was right around the 76.4% retracement of the move from ¥108.60 to ¥95.70.  Data released in Japan overnight saw the April corporate goods price index rise 3.7%, down from March’s 3.9% that represented the fastest annual rise since February 1981.  It was also reported that Japan’s current account surplus fell 12.3% y/y to ¥2.882 trillion in March while the trade surplus was off 29.0% y/y to ¥1.25 trillion.  Capital flows data released overnight saw foreigners purchase a net ¥1.184 trillion in Japanese equities last month.  Most traders believe Bank of Japan will keep the overnight call rate unchanged at 0.50% for several months after recently moving back to a neutral monetary policy stance from a rate normalization stance.  The Nikkei 225 stock gained 1.18% to close at ¥14,118.55.  Dollar bids are cited around the ¥101.35 levels.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥162.90 level and was supported around the ¥161.70 level.  The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥204.95 and ¥99.80 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9889 in the over-the-counter market, down from CNY 7.0030.  People’s Bank of China released its quarterly monetary policy report overnight in which it noted it will continue to tighten monetary policy to counter inflation by using bank reserve requirements and open market operations.  Data released in China overnight saw industrial value-added output up 16.3% between January and April.

₤

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9365 level and was capped around the $1.9475 level.  The pair continued its recent sell-off and reached its lowest level since 22 January.  Bank of England released its May quarterly inflation report overnight and indicated inflation should remain elevated for a longer period than previously anticipated.  The central bank’s base case scenario sees the annual CPI inflation rate reaching 3.6% later this year on account of higher energy and import costs.  Moreover, BoE’s range of forecast probabilities indicates there’s a real chance inflation could rise to 4% or higher.  BoE Governor King warned the U.K. may experience an “odd quarter or two” of negative economic growth and said the Monetary Policy Committee is “facing its biggest challenge yet.”  Coupled with rising inflation, negative economic growth would technically represent economic stagflation.  Traders have reduced their expectations about the likelihood of another rate cut from BoE next month.  Elsewhere in the U.K., Chancellor of the Exchequer Darling unveiled a surprise ₤2.7 billion tax cut today. Data released in the U.K. today saw the April claimant count of unemployment up 7,200, the third consecutive monthly rise.  Cable bids are cited around the US$ 1.9360/ 1.9100 levels.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7965 level and was supported around the ₤0.7925 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0600 figure and was supported around the CHF 1.0510 level.  Technically, today’s intraday low was just above the 50% retracement of the move from CHF 1.0625 to CHF 1.0390.  U.S. dollar offers are cited around the CHF 1.0760 level.  The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6330 and CHF 2.0580 levels, respectively.