USD Crumbles ahead of FOMC
U.S. Dollar Trading (USD) started to fall in Asia and the move accelerated in Europe as the market through caution to the wind and sold the dollar aggressively. New Year Highs were seen on the EURO, CHF and NZD against the Dollar. Traders were caught a little off guard as many thought the trading would be contained ahead of the FOMC announcement. Crude Oil was down $1.84 closing at $91.55. In US Stocks, DJIA +51 points closing at 9829, S&P +7 points closing at 1071 and NASDAQ +8 points closing at 2146. Looking ahead, FOMC Announcement widely expected to remain at 0.25% but attention will be given to the Statement and any talk of exit strategies.
The Euro (EUR) rallied from the start of Asia to test 1.4800 in Europe before consolidating gains around the figure. Key resistance is seen at 1.4850-70 and then onto the Key Psychological Level of 1.5000. EUR/GBP fell from fresh year highs above .9080 on a sell recommendation from a prime US investment bank. Overall the EUR/USD traded with a low of 1.4683 and a high of 1.4843 before closing at 1.4790. Looking ahead, EU September PMI Manufacturing forecast at 49.7 vs. 48.2 previously. Also released, PMI services forecast at 50.5 vs. 49.9.
The Japanese Yen (JPY) gained with broad USD weakness although fresh strength in US stocks helped most the crosses remain in familiar territory. USD/JPY found support at the 91 figure with the outlook remaining very cloudy as last weeks rejection of the 90 level being countered by yesterday's sharp reversal lower from the 92.50 level. Overall the USDJPY traded with a low of 90.49 and a high of 92.04 before closing the day around 91.05 in the New York session. Looking ahead, Bank holiday on Wednesday.
The Sterling (GBP) was one of the strongest currencies yesterday as crosses gave some reprieve along with a strong rally in GBP/USD up to the 1.6400 figure in late US trade. Helping lift the struggling pound was the sharp pull back in EUR/GBP and strong rally in Oil. Overall the GBP/USD traded with a low of 1.6217 and a high of 1.6406 before closing the day at 1.6360 in the New York session. Looking ahead, MPC minutes released from the meeting earlier this month.
The Australian Dollar (AUD) broke to fresh year highs in late US trade as Gold and Oil surged and risk appetite remain very elevated. USD weakness and NZD strength are helping underpin. AUD/NZD is under pressure though with the key 1.2000 level under threat. Overall the AUD/USD traded with a low of 0.8642 and a high of 0.8789 before closing the US session at 0.8750.
Gold (XAU) gained over $15 an ounce as Gold buyers flooded back into the market after the $1000 test on Monday failed. Overall trading with a low of USD$1004 and high of USD$1019 before ending the New York session at USD$1014 an ounce.
TECHNICAL COMMENTARY
Chart
Euro – 1.4810
Initial support at 1.4611 (Sept 21 low) followed by 1.4516 (Sept 14 low). Initial resistance is now located at 1.4866 (Sept 22 08 high) followed by 1.4908 (Aug 22 2008 high)
Yen – 90.75
Initial support is located at 90.13 (Sept 16 low) followed by 90.00 (Sept 16 low). Initial resistance is now at 92.53 (Sept 21 high) followed by 93.3 (Sept 7 high).
Pound – 1.6380
Initial support at 1.6135 (Sept 21 low) followed by 1.6114 (Sept 1 low). Initial resistance is now at 1.6568 (Sept 17 high) followed by 1.6742 (Sept 11 high).
Australian Dollar – 0.8770
Initial support at 0.8591 (Sept 21 low) followed by the 0.8529 (Sept 8 low). Initial resistance is now at 0.8875 (Sept 17 high) followed by 0.8814 (Aug 22 ' 08 high).
Gold – 1017
Initial support at 995 (Sept 21 low) followed by 982 (Sept 3 low). Initial resistance is now at 1024 (Sept 17 high) followed by 1032 (Mar 18 2008 high).
Tuesday, September 22, 2009
U.S. Forex Market Commentary Tue, Sep 22 2009
EURO
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4820 level and was supported around the $1.4670 level. Demand for risk grew today and the greenback was a casualty of the revival in risk appetite. Some traders got short U.S. dollars ahead of the Federal Open Market Committee’s interest rate decision tomorrow and Group of Twenty meeting later in the week in Pittsburgh. Speculation that the FOMC may decide to pare back or not renew some of its asset purchase programs contributed to a weaker greenback. A decision by the Fed to accelerate the end of its quantitative easing programs further could have a rough impact on the Treasury and mortgage-backed securities markets. On the other hand, an indication that the Fed plans to extend its emergency funding programs could have a negative impact on the U.S. dollar. U.S. economic data have been stronger recently and this probably works against the Fed extending some programs. Data released in the U.S. today saw September Richmond Fed manufacturing index remain steady at +14, unchanged from August’s +14 level. Also, the July housing price index was up 0.3% m/m and off 4.2% y/y. U.S. Treasuries appreciated after the sale of a record US$ 43 billion in two-year notes. In eurozone news, European Central Bank member Weber talked about exchange rates today, indicating they are “not out of line with stronger data coming from the eurozone compared to some other regions.” ECB member Sramko reported “There are still question marks over euro-zone growth despite upward revisions,” adding the ECB is “ready to take necessary steps” if economic growth stumbles after governments’ stimuli are phased out. This week’s G20 meeting could be a watershed event for the U.S. dollar. There have been strong international calls to replace the U.S. dollar as the main international reserve currency. Some announcements are expected on attempts to limit bankers’ pay. Euro bids are cited around the US$ 1.3900 figure.
JPY/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥90.95 level and was capped around the ¥92.10 level. Liquidity remained reduced during Australasian dealing on account of the ongoing Japanese market holiday. Asian Development Bank lifted its growth forecast for some developing Asian countries today and this added to risk appetite among traders. The yen continues to enjoy a positive interest rate differential over the U.S. dollar with the latter now acting as a funding currency given its record low levels. Three-month US$ Libor was fixed today at 0.28563 with three-month yen Libor fixed at 0.34875. Bank of Japan Governor Yamaguchi last week reported that maintaining emergency credit programs for “a long time…may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.” He added, however, that a “positive mechanism has started to take hold in the Japanese economy.” The central bank voted to keep monetary policy unchanged last week and upgraded its assessment of the economy. New finance minister Fujii last week verbally intervened saying exchange rates “should be determined by the state of a nation’s economy.” His comments suggest the new Democratic Party of Japan government may not be inclined to sell the yen through actual intervention. The Nikkei 225 stock index on Friday lost 0.70% to close at ¥10,370.54. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥134.55 level and was capped around the ¥135.30 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥149.40 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥88.80 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8190 in the over-the-counter market, down from CNY 6.8299. People’s Bank of China Deputy Governor Hu reported G20 nations should consider establishing an international wealth fund to invest a portion of members’ current account surpluses. There is continued speculation among dealers that Chinese monetary authorities may allow the yuan to appreciate further vis-à-vis the U.S. dollar.
The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4820 level and was supported around the $1.4670 level. Demand for risk grew today and the greenback was a casualty of the revival in risk appetite. Some traders got short U.S. dollars ahead of the Federal Open Market Committee’s interest rate decision tomorrow and Group of Twenty meeting later in the week in Pittsburgh. Speculation that the FOMC may decide to pare back or not renew some of its asset purchase programs contributed to a weaker greenback. A decision by the Fed to accelerate the end of its quantitative easing programs further could have a rough impact on the Treasury and mortgage-backed securities markets. On the other hand, an indication that the Fed plans to extend its emergency funding programs could have a negative impact on the U.S. dollar. U.S. economic data have been stronger recently and this probably works against the Fed extending some programs. Data released in the U.S. today saw September Richmond Fed manufacturing index remain steady at +14, unchanged from August’s +14 level. Also, the July housing price index was up 0.3% m/m and off 4.2% y/y. U.S. Treasuries appreciated after the sale of a record US$ 43 billion in two-year notes. In eurozone news, European Central Bank member Weber talked about exchange rates today, indicating they are “not out of line with stronger data coming from the eurozone compared to some other regions.” ECB member Sramko reported “There are still question marks over euro-zone growth despite upward revisions,” adding the ECB is “ready to take necessary steps” if economic growth stumbles after governments’ stimuli are phased out. This week’s G20 meeting could be a watershed event for the U.S. dollar. There have been strong international calls to replace the U.S. dollar as the main international reserve currency. Some announcements are expected on attempts to limit bankers’ pay. Euro bids are cited around the US$ 1.3900 figure.
JPY/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥90.95 level and was capped around the ¥92.10 level. Liquidity remained reduced during Australasian dealing on account of the ongoing Japanese market holiday. Asian Development Bank lifted its growth forecast for some developing Asian countries today and this added to risk appetite among traders. The yen continues to enjoy a positive interest rate differential over the U.S. dollar with the latter now acting as a funding currency given its record low levels. Three-month US$ Libor was fixed today at 0.28563 with three-month yen Libor fixed at 0.34875. Bank of Japan Governor Yamaguchi last week reported that maintaining emergency credit programs for “a long time…may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.” He added, however, that a “positive mechanism has started to take hold in the Japanese economy.” The central bank voted to keep monetary policy unchanged last week and upgraded its assessment of the economy. New finance minister Fujii last week verbally intervened saying exchange rates “should be determined by the state of a nation’s economy.” His comments suggest the new Democratic Party of Japan government may not be inclined to sell the yen through actual intervention. The Nikkei 225 stock index on Friday lost 0.70% to close at ¥10,370.54. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥134.55 level and was capped around the ¥135.30 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥149.40 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥88.80 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8190 in the over-the-counter market, down from CNY 6.8299. People’s Bank of China Deputy Governor Hu reported G20 nations should consider establishing an international wealth fund to invest a portion of members’ current account surpluses. There is continued speculation among dealers that Chinese monetary authorities may allow the yuan to appreciate further vis-à-vis the U.S. dollar.
U.S. Forex Market Commentary Mon, Sep 21 2009
EURO
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4610 level and was capped around the $1.4710 level. Traders will focus on some key events this week. First, the Federal Open Market Committee convenes tomorrow and Wednesday and is not expected to change interest rates at this time. Instead, Fed-watchers are interested to see if the FOMC provides any guidance as to when it may terminate some of its emergency funding programs with a particular emphasis on its programs to support the mortgage-backed securities market. The Fed is expected to provide at least some guidance about the exit strategy associated with its liquidity provision programs. The Fed is likely to acknowledge the recent improvement in U.S. economic data. It will also be interesting to see if the Fed acknowledges the recent weakness in the U.S. dollar. Second, all eyes will be on Pittsburgh where Group of Twenty officials are convening this week. Global policymakers are said to be promoting ideas for a consolidated regulatory framework in many jurisdictions including the U.S. and the eurozone. The further regulation of capital markets including the imposition of limits on the salaries of employees at financial institutions will be closely watched. Likewise, it will be interesting to see if G20 officials acknowledge the U.S. dollar’s recent weakness. Data released in the U.S. today saw August leading indicators climb 0.6%, below expectations and below the revised July print of +0.9%. Nonetheless, today’s print represented the fifth consecutive monthly improvement. Tomorrow’s U.S. data include the September Richmond Fed manufacturing index and July house prices. In other U.S. news, the Fed rejected the U.S. Treasury’s request to review its structure and governance. In eurozone news, European Central Bank policymaker Mersch reported “A low interest rate policy over a long period remains a very big danger for the banking system. This situation can’t be kept up for too long and as soon as the economy has started to recover well we will take the necessary measures to bring back a normalized rate structure. Mersch also said the economic crisis “is not over yet” and said there’s “still a whole row of risks” to banks and economies. ECB President Trichet urged G20 governments and central banks to coordinate their policies further. Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.50 level and was supported around the ¥91.30 level. Liquidity was reduced on account of a Japanese market holiday that will keep liquidity reduced through Thursday. The yen continues to enjoy a positive interest rate differential over the U.S. dollar with the latter now acting as a funding currency given its record low levels. Three-month US$ Libor was fixed today at 0.28938 with three-month yen Libor fixed at 0.34875. Bank of Japan Governor Yamaguchi last week reported that maintaining emergency credit programs for “a long time…may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.” He added, however, that a “positive mechanism has started to take hold in the Japanese economy.” The central bank voted to keep monetary policy unchanged last week and upgraded its assessment of the economy. New finance minister Fujii last week verbally intervened saying exchange rates “should be determined by the state of a nation’s economy.” His comments suggest the new Democratic Party of Japan government may not be inclined to sell the yen through actual intervention. The Nikkei 225 stock index on Friday lost 0.70% to close at ¥10,370.54. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥135.50 level and was supported around the ¥134.15 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥149.60 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.25 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8299 in the over-the-counter market, up from CNY 6.8291. China may purchase some of the 403.3 metric tons of gold being offered for sale by the International Monetary Fund to diversify its reserves. People’s Bank of China reported it will adjust monetary policy at an “appropriate time.” There is speculation among dealers that Chinese monetary authorities may allow the yuan to appreciate further vis-à-vis the U.S. dollar.
STERLING
The British pound fell vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6130 level and was capped around the $1.6265 level. Sterling remains under pressure on ongoing speculation that Lloyds Bank is facing liquidity pressures. Additionally, a Bank of England report noted concerns over U.K. debt issuance are increasing and this is also pressuring sterling. Data released in the U.K. overnight saw the September Rightmove house price index climb 0.6% m/m and decline 1.5% y/y. Minutes from the September BoE Monetary Policy Committee meeting are expected on Wednesday. Sterling faces downside risks if there was talk among policymakers that U.K. rates may need to remain lower for longer than expected. Cable bids are cited around the US$ 1.6030 level. The euro extended recent gains vis-à-vis the British pound as the single currency tested offers around the £0.9075 level and was supported around the £0.9040 level.
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4610 level and was capped around the $1.4710 level. Traders will focus on some key events this week. First, the Federal Open Market Committee convenes tomorrow and Wednesday and is not expected to change interest rates at this time. Instead, Fed-watchers are interested to see if the FOMC provides any guidance as to when it may terminate some of its emergency funding programs with a particular emphasis on its programs to support the mortgage-backed securities market. The Fed is expected to provide at least some guidance about the exit strategy associated with its liquidity provision programs. The Fed is likely to acknowledge the recent improvement in U.S. economic data. It will also be interesting to see if the Fed acknowledges the recent weakness in the U.S. dollar. Second, all eyes will be on Pittsburgh where Group of Twenty officials are convening this week. Global policymakers are said to be promoting ideas for a consolidated regulatory framework in many jurisdictions including the U.S. and the eurozone. The further regulation of capital markets including the imposition of limits on the salaries of employees at financial institutions will be closely watched. Likewise, it will be interesting to see if G20 officials acknowledge the U.S. dollar’s recent weakness. Data released in the U.S. today saw August leading indicators climb 0.6%, below expectations and below the revised July print of +0.9%. Nonetheless, today’s print represented the fifth consecutive monthly improvement. Tomorrow’s U.S. data include the September Richmond Fed manufacturing index and July house prices. In other U.S. news, the Fed rejected the U.S. Treasury’s request to review its structure and governance. In eurozone news, European Central Bank policymaker Mersch reported “A low interest rate policy over a long period remains a very big danger for the banking system. This situation can’t be kept up for too long and as soon as the economy has started to recover well we will take the necessary measures to bring back a normalized rate structure. Mersch also said the economic crisis “is not over yet” and said there’s “still a whole row of risks” to banks and economies. ECB President Trichet urged G20 governments and central banks to coordinate their policies further. Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.50 level and was supported around the ¥91.30 level. Liquidity was reduced on account of a Japanese market holiday that will keep liquidity reduced through Thursday. The yen continues to enjoy a positive interest rate differential over the U.S. dollar with the latter now acting as a funding currency given its record low levels. Three-month US$ Libor was fixed today at 0.28938 with three-month yen Libor fixed at 0.34875. Bank of Japan Governor Yamaguchi last week reported that maintaining emergency credit programs for “a long time…may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.” He added, however, that a “positive mechanism has started to take hold in the Japanese economy.” The central bank voted to keep monetary policy unchanged last week and upgraded its assessment of the economy. New finance minister Fujii last week verbally intervened saying exchange rates “should be determined by the state of a nation’s economy.” His comments suggest the new Democratic Party of Japan government may not be inclined to sell the yen through actual intervention. The Nikkei 225 stock index on Friday lost 0.70% to close at ¥10,370.54. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥135.50 level and was supported around the ¥134.15 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥149.60 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.25 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8299 in the over-the-counter market, up from CNY 6.8291. China may purchase some of the 403.3 metric tons of gold being offered for sale by the International Monetary Fund to diversify its reserves. People’s Bank of China reported it will adjust monetary policy at an “appropriate time.” There is speculation among dealers that Chinese monetary authorities may allow the yuan to appreciate further vis-à-vis the U.S. dollar.
STERLING
The British pound fell vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6130 level and was capped around the $1.6265 level. Sterling remains under pressure on ongoing speculation that Lloyds Bank is facing liquidity pressures. Additionally, a Bank of England report noted concerns over U.K. debt issuance are increasing and this is also pressuring sterling. Data released in the U.K. overnight saw the September Rightmove house price index climb 0.6% m/m and decline 1.5% y/y. Minutes from the September BoE Monetary Policy Committee meeting are expected on Wednesday. Sterling faces downside risks if there was talk among policymakers that U.K. rates may need to remain lower for longer than expected. Cable bids are cited around the US$ 1.6030 level. The euro extended recent gains vis-à-vis the British pound as the single currency tested offers around the £0.9075 level and was supported around the £0.9040 level.
U.S. Forex Market Commentary Mon, Sep 21 2009
EURO
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4610 level and was capped around the $1.4710 level. Traders will focus on some key events this week. First, the Federal Open Market Committee convenes tomorrow and Wednesday and is not expected to change interest rates at this time. Instead, Fed-watchers are interested to see if the FOMC provides any guidance as to when it may terminate some of its emergency funding programs with a particular emphasis on its programs to support the mortgage-backed securities market. The Fed is expected to provide at least some guidance about the exit strategy associated with its liquidity provision programs. The Fed is likely to acknowledge the recent improvement in U.S. economic data. It will also be interesting to see if the Fed acknowledges the recent weakness in the U.S. dollar. Second, all eyes will be on Pittsburgh where Group of Twenty officials are convening this week. Global policymakers are said to be promoting ideas for a consolidated regulatory framework in many jurisdictions including the U.S. and the eurozone. The further regulation of capital markets including the imposition of limits on the salaries of employees at financial institutions will be closely watched. Likewise, it will be interesting to see if G20 officials acknowledge the U.S. dollar’s recent weakness. Data released in the U.S. today saw August leading indicators climb 0.6%, below expectations and below the revised July print of +0.9%. Nonetheless, today’s print represented the fifth consecutive monthly improvement. Tomorrow’s U.S. data include the September Richmond Fed manufacturing index and July house prices. In other U.S. news, the Fed rejected the U.S. Treasury’s request to review its structure and governance. In eurozone news, European Central Bank policymaker Mersch reported “A low interest rate policy over a long period remains a very big danger for the banking system. This situation can’t be kept up for too long and as soon as the economy has started to recover well we will take the necessary measures to bring back a normalized rate structure. Mersch also said the economic crisis “is not over yet” and said there’s “still a whole row of risks” to banks and economies. ECB President Trichet urged G20 governments and central banks to coordinate their policies further. Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.50 level and was supported around the ¥91.30 level. Liquidity was reduced on account of a Japanese market holiday that will keep liquidity reduced through Thursday. The yen continues to enjoy a positive interest rate differential over the U.S. dollar with the latter now acting as a funding currency given its record low levels. Three-month US$ Libor was fixed today at 0.28938 with three-month yen Libor fixed at 0.34875. Bank of Japan Governor Yamaguchi last week reported that maintaining emergency credit programs for “a long time…may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.” He added, however, that a “positive mechanism has started to take hold in the Japanese economy.” The central bank voted to keep monetary policy unchanged last week and upgraded its assessment of the economy. New finance minister Fujii last week verbally intervened saying exchange rates “should be determined by the state of a nation’s economy.” His comments suggest the new Democratic Party of Japan government may not be inclined to sell the yen through actual intervention. The Nikkei 225 stock index on Friday lost 0.70% to close at ¥10,370.54. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥135.50 level and was supported around the ¥134.15 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥149.60 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.25 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8299 in the over-the-counter market, up from CNY 6.8291. China may purchase some of the 403.3 metric tons of gold being offered for sale by the International Monetary Fund to diversify its reserves. People’s Bank of China reported it will adjust monetary policy at an “appropriate time.” There is speculation among dealers that Chinese monetary authorities may allow the yuan to appreciate further vis-à-vis the U.S. dollar.
STERLING
The British pound fell vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6130 level and was capped around the $1.6265 level. Sterling remains under pressure on ongoing speculation that Lloyds Bank is facing liquidity pressures. Additionally, a Bank of England report noted concerns over U.K. debt issuance are increasing and this is also pressuring sterling. Data released in the U.K. overnight saw the September Rightmove house price index climb 0.6% m/m and decline 1.5% y/y. Minutes from the September BoE Monetary Policy Committee meeting are expected on Wednesday. Sterling faces downside risks if there was talk among policymakers that U.K. rates may need to remain lower for longer than expected. Cable bids are cited around the US$ 1.6030 level. The euro extended recent gains vis-à-vis the British pound as the single currency tested offers around the £0.9075 level and was supported around the £0.9040 level.
The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4610 level and was capped around the $1.4710 level. Traders will focus on some key events this week. First, the Federal Open Market Committee convenes tomorrow and Wednesday and is not expected to change interest rates at this time. Instead, Fed-watchers are interested to see if the FOMC provides any guidance as to when it may terminate some of its emergency funding programs with a particular emphasis on its programs to support the mortgage-backed securities market. The Fed is expected to provide at least some guidance about the exit strategy associated with its liquidity provision programs. The Fed is likely to acknowledge the recent improvement in U.S. economic data. It will also be interesting to see if the Fed acknowledges the recent weakness in the U.S. dollar. Second, all eyes will be on Pittsburgh where Group of Twenty officials are convening this week. Global policymakers are said to be promoting ideas for a consolidated regulatory framework in many jurisdictions including the U.S. and the eurozone. The further regulation of capital markets including the imposition of limits on the salaries of employees at financial institutions will be closely watched. Likewise, it will be interesting to see if G20 officials acknowledge the U.S. dollar’s recent weakness. Data released in the U.S. today saw August leading indicators climb 0.6%, below expectations and below the revised July print of +0.9%. Nonetheless, today’s print represented the fifth consecutive monthly improvement. Tomorrow’s U.S. data include the September Richmond Fed manufacturing index and July house prices. In other U.S. news, the Fed rejected the U.S. Treasury’s request to review its structure and governance. In eurozone news, European Central Bank policymaker Mersch reported “A low interest rate policy over a long period remains a very big danger for the banking system. This situation can’t be kept up for too long and as soon as the economy has started to recover well we will take the necessary measures to bring back a normalized rate structure. Mersch also said the economic crisis “is not over yet” and said there’s “still a whole row of risks” to banks and economies. ECB President Trichet urged G20 governments and central banks to coordinate their policies further. Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.50 level and was supported around the ¥91.30 level. Liquidity was reduced on account of a Japanese market holiday that will keep liquidity reduced through Thursday. The yen continues to enjoy a positive interest rate differential over the U.S. dollar with the latter now acting as a funding currency given its record low levels. Three-month US$ Libor was fixed today at 0.28938 with three-month yen Libor fixed at 0.34875. Bank of Japan Governor Yamaguchi last week reported that maintaining emergency credit programs for “a long time…may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.” He added, however, that a “positive mechanism has started to take hold in the Japanese economy.” The central bank voted to keep monetary policy unchanged last week and upgraded its assessment of the economy. New finance minister Fujii last week verbally intervened saying exchange rates “should be determined by the state of a nation’s economy.” His comments suggest the new Democratic Party of Japan government may not be inclined to sell the yen through actual intervention. The Nikkei 225 stock index on Friday lost 0.70% to close at ¥10,370.54. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥135.50 level and was supported around the ¥134.15 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥149.60 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.25 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8299 in the over-the-counter market, up from CNY 6.8291. China may purchase some of the 403.3 metric tons of gold being offered for sale by the International Monetary Fund to diversify its reserves. People’s Bank of China reported it will adjust monetary policy at an “appropriate time.” There is speculation among dealers that Chinese monetary authorities may allow the yuan to appreciate further vis-à-vis the U.S. dollar.
STERLING
The British pound fell vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6130 level and was capped around the $1.6265 level. Sterling remains under pressure on ongoing speculation that Lloyds Bank is facing liquidity pressures. Additionally, a Bank of England report noted concerns over U.K. debt issuance are increasing and this is also pressuring sterling. Data released in the U.K. overnight saw the September Rightmove house price index climb 0.6% m/m and decline 1.5% y/y. Minutes from the September BoE Monetary Policy Committee meeting are expected on Wednesday. Sterling faces downside risks if there was talk among policymakers that U.K. rates may need to remain lower for longer than expected. Cable bids are cited around the US$ 1.6030 level. The euro extended recent gains vis-à-vis the British pound as the single currency tested offers around the £0.9075 level and was supported around the £0.9040 level.
Last week’s currency trading review
The Dollar was broadly weak against nearly all currencies for a second week as Gold consolidated gains above $1000 and the Euro and Aussie hit fresh year highs. US stocks markets traded at year highs above 9800 on the Dow Jones. Helping risk sentiment was the large jump in August Retail Sales up 2.7% vs. 2.0% forecast. The Euro traded at 2009 highs of 1.4768 but finished well off these levels on Profit taking into the weekend. EUR/GBP buying help support as the cross broke above the key 0.9000 level. German ZEW forecast at 59.9 came in at 57.7 in September weaker than forecast but still higher than 56.1 previously. The EUR/USD gained 0.93% closing at 1.4707, after opening the week at 1.4570.
The Japanese Yen found strength in comments from the new Finance Minister Fujii stating he was not keen on government intervention in the FX markets and that a strong Yen was not necessarily bad for the Japanese economy. The BOJ met and discussed rates, keeping them at 0.1% but upgrading their economic view. The USD/JPY closed higher +0.93% at 91.35 after opening the week at 90.70. The GBP was pummeled lower by comments from BoE Governor King about lowering the interest paid on Bank reserves. Crosses all broke key levels with GBP/JPY under 150 and GBP/AUD under 1.9000. GBP/USD fell -2.40% closing at 1.6267 after opening at 1.6658. The AUD continued higher with gold sitting above $1000 and risk appetite remaining elevated. 0.8800 proved too much for the pair and it fell back to 0.8700 supports but is remaining well supported on both Interest Rate and Commodity outlooks. The AUD/USD closed up 0.47% at 0.8673 after opening at 0.8632.
The forex trading week preview
In the States; On Monday, August Leading Indicators forecast at 0.6% vs. 0.85 previously. On Tuesday, July House Price Index forecast at 0.5% vs. 0.5% previously. On Wednesday, FOMC Rate Decision forecast unchanged at 0.25% vs. 0.25%. On Thursday, Weekly Jobless 546k vs. 545k previously. On Friday, August Durable Goods forecast at 0.1% vs. 5.1% previously. Also released, UoM Consumer Confidence forecast unrevised at 70.2. The G20 meet on Thursday and Friday, releasing the Communique on Friday Afternoon. We will provide our previews and reviews of these data releases in the daily summary.
In the Eurozone; On Wednesday, September PMI Manufacturing forecast at 49.8 vs. 48.2 previously. PMI Services is forecast at 50.4 vs. 49.9 previously. On Thursday, German IFO forecast at 92.0 vs. 90.5 previously. On Friday, EU Money Supply forecast at 2.7% vs. 3.0% previously. In the UK; On Wednesday, MPC meeting minutes from this month. On Thursday, MPC Member and BOE chief Economist Dale speaks. We will provide our previews and reviews of these data releases in the daily summary.
In Japan; Light data week with BOJ meeting minutes released on Friday from last weeks meeting. In Australia; On Wednesday we have NZD GDP forecast at -0.2% vs. -1.0% previously. On Thursday, RBA Financial Stability Review released. We will provide our previews and reviews of these data releases in the daily summary.
TECHNICAL COMMENTARY
Currency Sup 2 Sup 1 Spot Res 1 Res 2
EUR/USD 1.4467 1.4516 1.471 1.4768 1.4866
USD/JPY 89.71 90 91.5 91.64 92.6
GBP/USD 1.6114 1.6237 1.625 1.6568 1.6742
AUD/USD 0.8529 0.8625 0.8675 0.8814 0.8943
XAU/USD 982 992 1004 1032 1050
* Euro – 1.4710
Initial support at 1.4516 (Sept 14 low) followed by 1.4467 (Sept 9 low). Initial resistance is now located at 1.4768 (Sept 17 high) followed by 1.4866 (Sept 22 2008 high)
* Yen – 91.50
Initial support is located at 90.00 (Big Figure) followed by 89.71 (February 11 low). Initial resistance is now at 91.64 (Sept 15 high) followed by 92.60 (Sept 9 high).
* Pound – 1.6250
Initial support at 1.6237 (Sept 3 low) followed by 1.6114 (Sept 1 low). Initial resistance is now at 1.6742 (Sept 11 high) followed by 1.6831 (Aug 7 high).
* Australian Dollar – 0.8675
Initial support at 0.8529 (Sept 8 low) followed by the 0.8383 (61.8% retrace 0..9850-0.6009). Initial resistance is now at 0.8813 (Aug 22 2008 high) followed by 0.8943 (76.4% retrace 0.9850-0.6009).
* Gold – 1004
Initial support at 992 (Sept 15 low) followed by 982 (Sept 3 low). Initial resistance is now at 1032 (Mar 17' 2008 high) followed by 1050 (Psychological Figure).
The Japanese Yen found strength in comments from the new Finance Minister Fujii stating he was not keen on government intervention in the FX markets and that a strong Yen was not necessarily bad for the Japanese economy. The BOJ met and discussed rates, keeping them at 0.1% but upgrading their economic view. The USD/JPY closed higher +0.93% at 91.35 after opening the week at 90.70. The GBP was pummeled lower by comments from BoE Governor King about lowering the interest paid on Bank reserves. Crosses all broke key levels with GBP/JPY under 150 and GBP/AUD under 1.9000. GBP/USD fell -2.40% closing at 1.6267 after opening at 1.6658. The AUD continued higher with gold sitting above $1000 and risk appetite remaining elevated. 0.8800 proved too much for the pair and it fell back to 0.8700 supports but is remaining well supported on both Interest Rate and Commodity outlooks. The AUD/USD closed up 0.47% at 0.8673 after opening at 0.8632.
The forex trading week preview
In the States; On Monday, August Leading Indicators forecast at 0.6% vs. 0.85 previously. On Tuesday, July House Price Index forecast at 0.5% vs. 0.5% previously. On Wednesday, FOMC Rate Decision forecast unchanged at 0.25% vs. 0.25%. On Thursday, Weekly Jobless 546k vs. 545k previously. On Friday, August Durable Goods forecast at 0.1% vs. 5.1% previously. Also released, UoM Consumer Confidence forecast unrevised at 70.2. The G20 meet on Thursday and Friday, releasing the Communique on Friday Afternoon. We will provide our previews and reviews of these data releases in the daily summary.
In the Eurozone; On Wednesday, September PMI Manufacturing forecast at 49.8 vs. 48.2 previously. PMI Services is forecast at 50.4 vs. 49.9 previously. On Thursday, German IFO forecast at 92.0 vs. 90.5 previously. On Friday, EU Money Supply forecast at 2.7% vs. 3.0% previously. In the UK; On Wednesday, MPC meeting minutes from this month. On Thursday, MPC Member and BOE chief Economist Dale speaks. We will provide our previews and reviews of these data releases in the daily summary.
In Japan; Light data week with BOJ meeting minutes released on Friday from last weeks meeting. In Australia; On Wednesday we have NZD GDP forecast at -0.2% vs. -1.0% previously. On Thursday, RBA Financial Stability Review released. We will provide our previews and reviews of these data releases in the daily summary.
TECHNICAL COMMENTARY
Currency Sup 2 Sup 1 Spot Res 1 Res 2
EUR/USD 1.4467 1.4516 1.471 1.4768 1.4866
USD/JPY 89.71 90 91.5 91.64 92.6
GBP/USD 1.6114 1.6237 1.625 1.6568 1.6742
AUD/USD 0.8529 0.8625 0.8675 0.8814 0.8943
XAU/USD 982 992 1004 1032 1050
* Euro – 1.4710
Initial support at 1.4516 (Sept 14 low) followed by 1.4467 (Sept 9 low). Initial resistance is now located at 1.4768 (Sept 17 high) followed by 1.4866 (Sept 22 2008 high)
* Yen – 91.50
Initial support is located at 90.00 (Big Figure) followed by 89.71 (February 11 low). Initial resistance is now at 91.64 (Sept 15 high) followed by 92.60 (Sept 9 high).
* Pound – 1.6250
Initial support at 1.6237 (Sept 3 low) followed by 1.6114 (Sept 1 low). Initial resistance is now at 1.6742 (Sept 11 high) followed by 1.6831 (Aug 7 high).
* Australian Dollar – 0.8675
Initial support at 0.8529 (Sept 8 low) followed by the 0.8383 (61.8% retrace 0..9850-0.6009). Initial resistance is now at 0.8813 (Aug 22 2008 high) followed by 0.8943 (76.4% retrace 0.9850-0.6009).
* Gold – 1004
Initial support at 992 (Sept 15 low) followed by 982 (Sept 3 low). Initial resistance is now at 1032 (Mar 17' 2008 high) followed by 1050 (Psychological Figure).
U.S. Forex Market Commentary Sun, Sep 20 2009
EURO
The euro ceded some gains vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4645 level and was capped around the $1.4745 level. The common currency failed to establish another multi-month high again today for the first time since 4 September. The greenback moved higher at the expense of European currencies on speculation that U.K. banking giant Lloyds lacks capital. Three-month U.S. dollar interbank lending rates fell to a record low of 0.289% today meaning Libor is now lower than the yen’s and Swiss franc’s Libor rates, rendering the U.S. dollar a funding currency for carry trades. Federal Reserve Chairman Bernanke’s renomination was made official today by the Obama administration. The Fed is currently devising plans to limit bank employees’ pay in an attempt to discourage excessive risk-taking. Data to be released in the U.S. next week include August leading indicators, the September Richmond Fed manufacturing index, and July house prices. In eurozone news, the EMU-16 July current account moved into surplus at €6.6 billion for the for the first time since February 2008, up from June’s revised deficit of €4.3 billion. Also, German producer price inflation rose 0.5% m/m and fell 6.9% y/y with the ex-energy component up 0.3% m/m and off 3.4% y/y. Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥91.55 level and was supported around the ¥90.90 level. Bank of Japan Governor Yamaguchi reported that maintaining emergency credit programs for “a long time…may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.” He added, however, that a “positive mechanism has started to take hold in the Japanese economy.” The central bank voted to keep monetary policy unchanged last night and upgraded its assessment of the economy. New finance minister Fujii verbally intervened saying exchange rates “should be determined by the state of a nation’s economy.” His comments suggest the new Democratic Party of Japan government may not be inclined to sell the yen through actual intervention. In contrast, former finance minister Yosano said his government had “unshakable” support for the U.S.’s strong dollar policy. The Japanese government has not officially intervened in the markets since March 2004. As expected, Bank of Japan yesterday upgraded its assessment of the Japanese economy and noted the economy is “showing signs of recovery.” The Nikkei 225 stock index lost 0.70% to close at ¥10,370.54. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥134.45 level and was supported around the ¥133.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥148.25 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.80 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8291 in the over-the-counter market, up from CNY 6.8200. This week’s U.S. TICS investment flows data revealed China was a net buyer of U.S. government assets last month. People’s Bank of China reported it has kept the yuan stable vis-à-vis the U.S. dollar to promote regional stability. PBoC also reported “the Australian dollar is a shadow currency of the yuan.”
STERLING
The British pound fell sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6230 level and was capped around the $1.6455 level. Concerns that U.K. banking giant Lloyds may be experiencing a liquidity shortfall weighed heavily on sterling. Bank of England Monetary Policy Committee member Miles was quoted as saying “We may get a couple of quarters pretty soon of very small increases in GDP. If you take that technical definition, we might be out of the recession in six or nine months.” BoE also reported U.K. lenders are not seeing any significant increase in demand for new business loans. Data released in the U.K. today saw CML August average gross mortgage lending off 13% at £12.6 billion. Prime Minister Brown today called for the immediate establishment of crisis management groups to manage troubles at multinational banks. Group of Twenty officials convene in Pittsburgh next week. Other data released in the U.K. today saw the M4 money supply increase 0.1% m/m and 12.6% y/y while August public sector net borrowing improved to £16.1 billion from £8 billion in July. Cable bids are cited around the US$ 1.6030 level. The euro extended recent gains vis-à-vis the British pound as the single currency tested offers around the £0.9055 level and was supported around the £0.8955 level.
The euro ceded some gains vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4645 level and was capped around the $1.4745 level. The common currency failed to establish another multi-month high again today for the first time since 4 September. The greenback moved higher at the expense of European currencies on speculation that U.K. banking giant Lloyds lacks capital. Three-month U.S. dollar interbank lending rates fell to a record low of 0.289% today meaning Libor is now lower than the yen’s and Swiss franc’s Libor rates, rendering the U.S. dollar a funding currency for carry trades. Federal Reserve Chairman Bernanke’s renomination was made official today by the Obama administration. The Fed is currently devising plans to limit bank employees’ pay in an attempt to discourage excessive risk-taking. Data to be released in the U.S. next week include August leading indicators, the September Richmond Fed manufacturing index, and July house prices. In eurozone news, the EMU-16 July current account moved into surplus at €6.6 billion for the for the first time since February 2008, up from June’s revised deficit of €4.3 billion. Also, German producer price inflation rose 0.5% m/m and fell 6.9% y/y with the ex-energy component up 0.3% m/m and off 3.4% y/y. Euro bids are cited around the US$ 1.3900 figure.
JPY / CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥91.55 level and was supported around the ¥90.90 level. Bank of Japan Governor Yamaguchi reported that maintaining emergency credit programs for “a long time…may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.” He added, however, that a “positive mechanism has started to take hold in the Japanese economy.” The central bank voted to keep monetary policy unchanged last night and upgraded its assessment of the economy. New finance minister Fujii verbally intervened saying exchange rates “should be determined by the state of a nation’s economy.” His comments suggest the new Democratic Party of Japan government may not be inclined to sell the yen through actual intervention. In contrast, former finance minister Yosano said his government had “unshakable” support for the U.S.’s strong dollar policy. The Japanese government has not officially intervened in the markets since March 2004. As expected, Bank of Japan yesterday upgraded its assessment of the Japanese economy and noted the economy is “showing signs of recovery.” The Nikkei 225 stock index lost 0.70% to close at ¥10,370.54. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥134.45 level and was supported around the ¥133.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥148.25 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.80 level. In Chinese news, the U.S. dollar gained ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8291 in the over-the-counter market, up from CNY 6.8200. This week’s U.S. TICS investment flows data revealed China was a net buyer of U.S. government assets last month. People’s Bank of China reported it has kept the yuan stable vis-à-vis the U.S. dollar to promote regional stability. PBoC also reported “the Australian dollar is a shadow currency of the yuan.”
STERLING
The British pound fell sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6230 level and was capped around the $1.6455 level. Concerns that U.K. banking giant Lloyds may be experiencing a liquidity shortfall weighed heavily on sterling. Bank of England Monetary Policy Committee member Miles was quoted as saying “We may get a couple of quarters pretty soon of very small increases in GDP. If you take that technical definition, we might be out of the recession in six or nine months.” BoE also reported U.K. lenders are not seeing any significant increase in demand for new business loans. Data released in the U.K. today saw CML August average gross mortgage lending off 13% at £12.6 billion. Prime Minister Brown today called for the immediate establishment of crisis management groups to manage troubles at multinational banks. Group of Twenty officials convene in Pittsburgh next week. Other data released in the U.K. today saw the M4 money supply increase 0.1% m/m and 12.6% y/y while August public sector net borrowing improved to £16.1 billion from £8 billion in July. Cable bids are cited around the US$ 1.6030 level. The euro extended recent gains vis-à-vis the British pound as the single currency tested offers around the £0.9055 level and was supported around the £0.8955 level.
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