By GCI Forex Research
Fundamental Outlook at 1400 GMT (EDT + 0400)
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The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.2990 level and was supported around the $1.2870 level. The common currency stopped just short of testing the US$ 1.3000 figure during the European session and North American dealers knocked the pair lower. Federal Reserve Chaiman Bernanke testifies this week following the Fed’s downward revisions to economic growth and inflation forecasts and its upward revision to its unemployment projections. The common currency tracked U.S. equities higher today as traders responded to some positive U.S. earnings data and shook off a report British Petroleum’s well cap solution in the Gulf of Mexico may be leaking. Data released in the U.S. today saw the July NAHB housing market index decline to +14 from the revised prior reading of +16. Data to be released tomorrow include June housing starts and June building permits. In eurozone news, there was a report today that Germany’s Hypo Real Estate Holding AG failed its bank stress test. Results from up to 91 European bank stress tests will be released on Friday and may impact the euro’s direction. There is talk that the International Monetary Fund will seek to increase the amount of funds it can lend to US$ 1 trillion from the current level of US$ 750 billion. Data released in the eurozone today saw the EMU-16 May current account balance widen to –€$ 5.8 billion from the revised print of -€5.6 billion. Also, EMU-16 May construction output was off 1.0% m/m and 6.3% y/y. Euro offers are cited around the US$ 1.2830 level.
¥/ CNY
The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥87.20 level and was capped around the ¥86.50 level. An anonymous Bank of Japan source suggested the central bank may intervene around the ¥85 level if the pair depreciates to that area and continues to trade there. Japanese monetary authorities have not officially intervened for years but they will clearly not want the pair to risk a move below the ¥80 figure. Japanese financial markets were closed overnight and will reopen overnight. Data to be released in Japan overnight include the May leading index, May coincident index, and June convenience store sales. The Cabinet Office will release its monthly economic report on Wednesday. The Nikkei 225 stock index on Friday lost 2.86% to close at ¥9,408.36. U.S. dollar bids are cited around the ¥86.29 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥113.05 level and was supported around the ¥111.40 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥133.40 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.10 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7787 in the over-the-counter market, up from CNY 6.7747. Former People’s Bank of China adviser Yu Yongding reported China should reduce the amount of U.S. Dollar holdings in its portfolio. China’s foreign exchange reserves totaled US$ 2.454 trillion in the second quarter and in May, China reduced its U.S. Treasury holdings to US$ 867.7 billion. PBoC is expected to maintain a relatively loose monetary policy.
£
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5235 level and was capped around the US$ 1.5350 level. Many data will be released in the U.K. tomorrow including June public finances, the June M4 money supply, June CBI total orders, and June CBI business optimism. Bank of England Monetary Policy Committee member Sentance reported a “gradual” increase in interest rates would be “helpful for the economic recovery.” Cable bids are cited around the US$ 1.5140 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8505 level and was supported around the £0.8425 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0535 level and was supported around the CHF 1.0445 level. Data to be released in Switzerland tomorrow include the June trade balance followed by June money supply data on Wednesday. Most dealers believe SNB has been forced to intervene less on account of all of the euro-denominated assets on its balance sheet but some note the SNB will likely continue to intervene at opportune levels. U.S. dollar offers are cited around the CHF 1.0980 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3650 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.6010 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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