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Daily Market Commentary - 17/12/2008

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Dec 17, 2008.

  1. gcitrading

    gcitrading Contributing Member

    Dec 16, 2008
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    GCI Foreign Exchange Research: www.gcitrading.com/fxnews/
    FX Research Desk: fxnews@gcitrading.com

    17 December 2008, Wednesday
    Fundamental Outlook at 1500 GMT (EDT + 0500)

    The euro moved sharply higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4435 level and was supported around the $1.4000 figure. The common currency’s gains were precipitated by yesterday’s surprising interest rate cut by the Federal Open Market Committee that saw the overnight federal funds target rate changed to a range of 0% to 0.25% from the previous 1.0% level. The FOMC reported “Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further. Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.” The Fed’s announcement confirms that it has initiated quantitative easing, an undertaking already evidenced by the fact that the Fed’s balance sheet has swelled to US$ 2.3 trillion from US$ 800 billion. Data released in the U.S. today saw the Q3 current account deficit narrow to –US$ 174.1 billion from a revised –US$ 180.9 billion in Q2. In eurozone news, European Central Bank member Weber changed his tune a little bit regarding the ECB’s interest rate policy and reported “I wouldn't cry wolf if, in a situation of very low inflation and positive real rates, nominal rates would briefly fall below 2 per cent.” A German government advisor is pressing the government to implement an additional €20 billion fiscal stimulus in 2009. Data released in the eurozone today saw November EMU-15 inflation decline to 2.1% y/y, just above the ECB’s upper target level around 2.0%. Many traders believe the ECB will reduce interest rates again in January. Euro bids are cited around the US$ 1.3995 level.

    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥87.10 level and was capped around the ¥89.20 level. There is intense speculation that yesterday’s unprecedented rate cut and announcement by the Federal Open Market Committee will result in additional monetary easing measures by Bank of Japan this week. Overnight Japanese rates at 0.3% are now higher than overnight U.S. rates at 0% to 0.25%. Government minister Kawamura reported “The abnormal rise in the yen could affect export industries and I hope that the BOJ will make a comprehensive consideration, including those factors, to decide its monetary policy.” Some believe the BoJ will take a page out of the Fed’s playbook and begin to purchase commercial paper outright or asset-backed securities. Others believe the BoJ will increase the amount of long-term Japanese government bonds it purchases outright every month from the current ¥1.2 trillion level. The Nikkei 225 stock index climbed 0.52% to close at ¥8,612.52. U.S. dollar offers are cited around the ¥104.15 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥126.15 level and was suppported around the ¥124.20 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥134.85 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥81.20 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8357 in the over-the-counter market, down from CNY 6.8465.
    #1 gcitrading, Dec 17, 2008
    Last edited by a moderator: Dec 20, 2008

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