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$ 1.4760 level and was capped around the $1.4815 level. Technically, today’s intraday low was just above the 61.8% retracement of the move from $1.4825 to $1.4640. Data released in the U.S. today saw the November trade deficit expand 9.3% to US$ 63.1 billion, its highest level in fourteen months, while the December import price index grew 0% m/m and 10.9% y/y. There is a little market chatter that suggests the FOMC may ease rates by 75bps on 30 January but this is unlikely. Most traders expect the Fed will cut rates by 25bps or 50bps at the end of the month, especially after Chairman Bernanke said the Fed is ready to take “substantive” action. Traders are also talking about a report that Merrill Lynch may announce a larger-than-expected write-down next week for Q4 earnings related to its sub-prime exposure. Also, traders noted Bank of America is purchasing Countrywide – the beleaguered home lending giant – for US$ 4.1 billion in stock. In eurozone news, traders are still talking about the very hawkish comments made by European Central Bank President Trichet yesterday wherein he said the ECB will tighten rates “preemptively” if needed. Euro bids are cited around the US$ 1.4705/ 1.4625 levels.

JPY / CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥108.65 level and was capped around the ¥109.70 level. Technically, today’s intraday low was right around the 61.8% retracement of the move from ¥107.85 to ¥110.10. Bank of Japan Governor Fukui spoke overnight and said weaker housing activity will lead to a weaker economic “for the time being.” Japanese interest rate futures are actually pricing in a 6bps cut in rates over the next twelve months whereas most traders believe the BoJ’s next move in rates is up from the current 0.50% level of the overnight call rate. Data released in Japan overnight saw the December economy watchers’ survey worsen for the ninth consecutive month with the current conditions index declining to 36.6 – its lowest level since January 2003. Also, bank lending by Japanese banks rose 0.2% y/y in December, the smallest rise in nearly two years. The Nikkei 225 stock index lost 1.93% to close at ¥14,110.79. Dollar bids are cited around the ¥108.40 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥160.65 level and was capped around the ¥162.25 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥212.00 and ¥98.55 levels, respectively. The Chinese yuan appreciated sharply vis-à-vis the U.S. dollar as the greenback closed at CNY 7.2620 in the over-the-counter market, down from CNY 7.2719. PBoC announced China’s foreign reserves topped US$ 1.53 trillion at the end of 2007. It was also reported that China’s trade surplus at the end of 2007 was US$ 262.2 billion, up from US$ 177.47 billion at the end of 2006.

STERLING

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9480 level and was capped around the $1.9635 level. Cable weakened today to its weakest level since 20 March 2007. Data released in the U.K. today saw November industrial production fall 0.1% m/m – below expectations – while manufacturing output was also off 0.1% m/m. These prints incited talk that the manufacturing sector may be headed into recession. Also, the FT reported December house price growth reached its slowest pace since July 2005 in England and Wales. Cable bids are cited around the US$ 1.9260 level. The euro gained marginal ground vis-à-vis the British pound as the single currency tested offers around the ₤0.7585 level and was supported around the ₤0.7535 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0975 level and was capped around the CHF 1.1050 level. The pair reached its lowest level since 27 November. U.S. dollar offers are cited around the CHF 1.1125 level. The euro and British pound fell vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6245 and CHF 2.1420 levels, respectively.

Retaled Link :
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