U.S. Forex Market Commentary

EURO

The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4710 level and was capped around the $1.4840 level.  Stops were hit below the $1.4740 level, representing the 23.6% retracement of the move from $1.4015 to $1.4965.  The common currency came off despite some weak U.S. economic data.  New orders for durable goods fell 0.4% in October, an improvement from September’s 1.4% decline and August’s 5.3% fall.  The all-important new orders for durable goods, non-defense capital goods excluding aircraft component was off 2.3%.  These data are important because they suggest the housing market recession may be impacting other segments of the economy, notably business investment.  Also, it was reported that October existing home sales were off 1.2% m/m, the eighth consecutive monthly decline.  Federal Reserve Vice Chairman Kohn was relatively dovish in remarks, saying “Uncertainties about the economic outlook are unusually high right now. In my view, these uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago.” Kohn added “elevated turbulence” and credit constraints seem worse than a month or two ago. Notably, fed funds futures are implying a 64% chance the FOMC will reduce its overnight target rate by 50bps on 11 December and are pricing in a 63% chance rates will be 3.75% by the end of the FOMC’s meeting on 29-30 January.  In contrast to Kohn’s remarks, Philadelphia Fed President Plosser yesterday said “It is important to recognize that the Fed cannot resolve this price discovery problem. The markets will have to figure this out. Arbitrarily lowering interest rates or providing liquidity to the market does not provide the answers the market seeks. Indeed, rate cuts might only delay the painful process.” Other data released today saw October building permits downwardly revise to -7.2% from -6.6%.  Traders await the Fed’s November Beige Book today.  In eurozone news, the German GfK climate index fell to 4.3, the fourth consecutive decrease. Also, EMU-13 M3 money supply growth accelerated to 12.3% from 11.3% in September and this will force the ECB to remain vigilant against inflation.  The German economy now expects the German economy will slow to 2.0% growth in 2008 from about 2.4% in 2007.  It was also reported that German October wholesale sales were up 0.6% m/m and 1.8% y/y. 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 ¥110.10 level and was supported around the ¥108.25 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from ¥111.75 to ¥107.20.  The yen was given on a resurgence in global risk appetite following Abu Dhabi’s US$ 7.5 billion investment in Citigroup. The greater demand for risk also coincides with the current retreat in the cost of oil.  Data released in Japan overnight saw October retail sales up 0.8% y/y, the third consecutive monthly gain.  Most traders believe BoJ’s Policy Board will keep the overnight call rate target unchanged at 0.50% for several months.  The Nikkei 225 stock index lost 0.45% to close at ¥15,153.78. Dollar bids are cited around the ¥106.55 level.  The euro improved vis-à-vis the yen as the single currency tested offers around the ¥162.35 level and was supported around the ¥160.20 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥227.90 level while the Swiss franc came off vis-à-vis the yen and tested bids around the ¥97.60 level.  The Chinese yuan weakened vis-à-vis the U.S. dollar as the greenback closed at CNY 7.3945 in the over-the-counter market, up from CNY 7.3840.  The EU announced that it and Chinese officials share a “common diagnosis” that the yuan should appreciate vis-à-vis the euro.  Chinese Premier Wen said the “depreciating U.S. dollar” is the cause of the euro’s strength.

STERLING

The British moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 2.0725 level and was supported around the $2.0580 level.  Bank of England MPC member Lomax reported the central bank is on “super alert” for signs of economic changes while fellow MPC member Sentance reported “These upside inflationary risks from oil and other commodity prices need to be weighed in the balance against the downside risks to growth - and hence inflation - from the recent financial turmoil.” Data released in the U.K. today saw Land Registry house price growth in England and Wales fall 0.1% m/m.  Most traders believe the MPC will begin lowering interest rates early next year, if not in December.  Cable bids are cited around the US$ 2.0365 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the £0.7120 level and was capped around the £0.7180 level.

SWISS

The Swiss franc moved lower vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1195 level and was supported around the CHF 1.1040 level.  Data released in Switzerland today saw the November KOF economic barometer fall to 2.02 from 2.04 in October.  Dollar offers are cited around the CHF 1.1270 level.  The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6495 level and was supported around the CHF 2.3145 level.

AUD/NZD

The Australian dollar gained ground vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.8845 level and was supported around the $0.8720 level.  Data released in Australia today saw Q3 building activity up +4.0% q/q while the November skilled vacancies index was up +0.6% m/m.  Australian dollar bids are cited around the US$ 0.8535 level.  The New Zealand dollar appreciated vis-à-vis the U.S. dollar today as the kiwi tested offers around the US$ 0.7720 level and was supported around the $0.7565 level.  New Zealand dollar bids are cited around the US$ 0.7485 level.

CAD

The Canadian dollar appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 0.9910 level and was capped around the $1.0000 figure.  The pair tested and then shied away from parity ahead of tomorrow’s Q3 current account data.  The big news on the horizon for the loonie after Friday’s GDP data involves Tuesday’s Bank of Canada interest rate decision. Many traders believe BoC may begin to ease monetary policy on account of the strength of the loonie.  U.S. dollar offers are cited around the C$ 1.0175 level.