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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Oct 15, 2010.

  1. gcitrading

    gcitrading Contributing Member

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    The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3935 level and was capped around the $1.4160 level. Technically, today’s intraday low was right around the 76.4% retracement of the $1.4580 – 1.1875 range. The dollar’s gains today were precipitated by comments from Federal Reserve Chairman Bernanke who reported additional monetary stimulus may be required because inflation remains too low and unemployment remains elevated. Bernanke suggested “There would appear – all else being equal – to be a case for further action” but acknowledged that “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.” Most dealers believe the Federal Open Market Committee will adopt additional quantitative easing measures at its November meeting, possibly involving the expansion of its balance sheet by as much as US$ 500 billion through the purchase of additional U.S. Treasury securities. Bernanke admitted the Fed did not have a firm grasp as to how much it might increase its balance sheet by if it decides to move in that direction. Fed officials including Dudley, Evans, and Rosengren have noted they favour additional easing while Fed officials including Hoenig, Plosser, and Fisher have noted their opposition. U.S. Treasuries came off today on the premise the Fed may move to some semblance of a formal inflation target to create some inflation, a move that could be dollar-supportive and negative for bonds. Data released in the U.S. today saw the September consumer price index up 0.1% m/m and 1.1% y/y at the headline level and up 0.0% m/m and 0.8% y/y at the core level. Also, September advance retail sales were up 0.6% at the headline level and 0.4% at the ex-autos level. Moreover, August business inventories were up 0.6%, October Empire State manufacturing improved sharply to 15.73, and mid-October University of Michigan consumer sentiment fell to 67.9. In eurozone news, European Central Bank member Liikanen verbally intervened against the euro’s strength and ECB member Stark warned about keeping rates too low for too long. Data release in the eurozone today saw EMU-16 September consumer price inflation up 0.2% m/m and 1.0% y/y while the August trade deficit expanded to -€1.4 billion. Euro bids are cited around the US$ 1.3670 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥80.85 level and was capped around the ¥81.60 level. The pair ignored dollar strength elsewhere that followed comments from Fed Chairman Bernanke regarding the possibility of the Fed seeking to create some inflation. Bank of Japan’s monthly economic assessment was released overnight and noted that nine regional economies have recovered at a moderate pace or improved. BoJ Governor Shirakawa reiterated the central bank is poised to adopt more easing action if needed. The central bank also noted exports and production will continue to expand at a moderate pace. Major stops were hit below the ¥81.10 level this week, representing the pair’s previous low dating to 1995. There was no indication of actual intervention from Japanese monetary authorities this week and many traders believe the threat of additional yen-selling intervention has increased dramatically, especially considering the pace of the ongoing move lower. Data released in Japan overnight saw August industrial production off 0.5% m/m and up 15.1% y/y while August capacity utilization was off 0.9% m/m. The Nikkei 225 stock index lost 0.87% to close at ¥9,500.25. U.S. dollar bids are cited around the ¥84.60 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥113.55 level and was ccapped around the ¥114.75 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥130.00 figure while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥84.80 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.6411 in the over-the-counter market, down from CNY 6.6512. Data released in China overnight saw September property prices increase while September actual foreign direct investment was up 6.1% y/y. Today’s yuan high represented the currency’s strongest level since 1993 and reflected speculation U.S. legislators will increase their calls for a faster appreciation of the yuan. This has become a politically-sensitive subject ahead of mid-term elections and after it was reported the U.S.’s trade deficit with China widened to a record -US$ 28 billion in August. Notably, the U.S. government today postponed a decision on whether or not to officially name China a currency manipulator, a move that could have major trade implications between the two countries.
    £
    The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5970 level and was capped around the US$ 1.6105 level. Bank of England Monetary Policy Committee member Fisher said the central bank’s bond purchases have been “extremely successful” and added the central bank does not know what its next step will be with its £200 billion program. MPC member Sentance spoke this week and advocated “gradual” rate increases, suggesting a lax policy risked a “more deeply ingrained” consumer price inflation. Former MPC member Besley characterized the U.K. economy as “fragile.” Data released in the U.K. this week saw September Nationwide consumer confidence decline to +53 from the previous tally of +62. Also, the September claimant count rate remained steady at 4.5% and September jobless claims were up 5,300. August average weekly earnings expanded and the August ILO unemployment rate printed at 7.7%. Bank of England Monetary Policy Committee member Miles this week said inflation remains “worryingly” above target, adding risks are “broadly balanced” at the moment. BoE Governor King said it is a “mistake” to assume that the worst is over and added he foresees a “long” economic adjustment with risk of shocks. Cable bids are cited around the US$ 1.5645 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8720 level and was capped around the £0.8795 level.
    CHF
    The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 0.9600 figure and was supported around the CHF 0.9485 level. Swiss bank UBS reported Swiss National Bank will begin lifting its benchmark interest rates in Q1 2011. Data released in Switzerland this week saw September producer and import prices off 0.1% m/m and up 0.3% y/y. Swiss National Bank member Jordan last weekend defended the Swiss plan to call for capital adequacy ratios for Swiss banks far in excess of what is being called for in Basel III. Finance minister Merz said there are “no concrete signs” of any need to conduct intervention on the franc now, adding weaker currencies have a “massive impact” on Swiss exports. SNB Chairman Hildebrand reported “One of the biggest challenges for the global economy is the reduction of imbalances. It is very important that this adjustment process happens in a cooperative way. It shouldn’t happen through currency wars. We should avoid using protectionist instruments to achieve this goal.” Hildebrand added the risk of deflation in Switzerland was averted in June. U.S. dollar offers are cited around the CHF 0.9925 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.3360 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5375 level.
     
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