31 July 2008
Thursday
Fundamental Outlook at 1400 GMT (EDT + 0400)
€
The euro reversed recent losses vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5700 figure and was supported around the $1.5570 level. The common currency gave back some intraday gains after the release of U.S. Q2 GDP data that saw the economy expand at an annualized 1.9% pace, up from the downwardly revised 0.9% pace in Q1. The Q2 pace of growth represented the fastest since Q3 2007. Q2 personal consumption expenditures were up 4.2%, up from Q1’s 3.6% pace, while the core PCE price index was up 2.1%, down from 2.3% in Q1 but still above the 2.0% upper limit of the Federal Reserve’s perceived comfort zone. Other U.S. data saw weekly initial jobless claims rise 44,000 to 448,000, the highest level since April 2003, while continuing jobless claims were up 185,000 to 3.282 million, the greatest increase since June 1998. Additionally, Q2 overall employment costs were up 0.7% in the quarter and 3.1% y/y. In euro zone news, provisional EMU-15 harmonized inflation reached a new record high of 4.1% in July, up from 4.0% in June. Also, German July unemployment fell 20,000 while EMU-15 June unemployment was unchanged at 7.3% in May. Most traders believe the European Central Bank will keep borrowing costs unchanged over the next couple of months despite an increase in inflation costs. Euro bids are cited around the $1.5585/ 1.5230 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.55 level and was capped around the ¥108.35 level. The pair reached its highest level since 25 June before coming off. Many economic data were released in Japan overnight. First, July manufacturing PMI contracted for the fifth consecutive month, printing at 47.0. Second, June wage earners’ total cash earnings were off 0.6% y/, the first decline in six months. Third, orders by Japan ’s 50 largest contractors were off 11.7%. Fourth, June housing starts were down 16.7%. These data follow yesterday’s disappointing industrial output data. Bank of Japan released a report overnight that noted “As the negative feedback loop between the financial sector and the real economy advanced in the U.S. , uncertainty surrounding the financial market and the economy increased and led to a decrease in investors' risk appetite, as they tried to limit their holdings of risky assets.” The central bank also said escalating inflation concerns have increased instability in the financial markets. Earlier this month, the central bank downwardly revised its economic assessment of the economy and most traders believe the BoJ will keep the overnight call rate unchanged at 0.50% for the foreseeable future. The overnight interest rate swaps market is currently pricing in about 18bps of rate hikes from the BoJ over the next twelve months. The Nikkei 225 stock index climbed 0.07% to close at ¥13,376.81. Dollar bids are cited around the ¥106.40 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥169.15 level and was supported around the ¥168.15 level. The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥213.35 and ¥103.05 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8317 in the over-the-counter market, up from CNY 6.8272. Standard & Poor upgraded China ’s sovereign ratings to A+/ A-1. People’s Bank of China Vice Governor Su Ning reported “Monetary policy should seek a balance between containing inflation and maintaining stable and fast economic growth.”
£
The British pound slumped vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9780 level and was capped around the $1.9930 level. Cable failed to sustain its intraday gains after the release of U.S. economic and PCE data. Data released in the U.K. today saw Nationwide July house prices fall 1.7% m/m, the ninth consecutive monthly decline. Also, GfK/ NOP July consumer confidence fell to -39, its lowest level since 1974. These data reinforce the view of many economists that the U.K. economy is heading into a recession. Bank of England Monetary Policy Committee member Besley reported “What we have to guard against is the persistence of inflation and a little more (action) now could mean we are all better off in the end.” Cable bids are cited around the $1.9360 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.7890 level and was supported around the £0.7855 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0495 level and was supported around the CHF 1.0400 figure. Data released in Switzerland overnight saw July consumer price inflation reach a fifteen-year high, off 0.4% m/m and up 3.1% y/y. Interest rate futures are pricing in a high probability that Swiss National Bank will lift interest rates over the next twelve months. U.S. dollar offers are cited around the CHF 1.0515/ 1.0625 levels. The euro gained ground vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6370 level while the British pound came off and tested bids around the CHF 2.0690 level.
Technical Outlook at 1230 GMT (EDT + 0400)
(Bid Price) (Today’s Intraday Range)
EUR/ USD 1.5686 1.5695, 1.5568
USD/ JPY 107.61 108.36, 107.59
GBP/ USD 1.9908 1.9912, 1.9779
USD/ CHF 1.0413 1.0485, 1.0403
AUD/ USD 0.9466 0.9474, 0.9410
USD/CAD 1.0250 1.0265, 1.0212
NZD/USD 0.7355 0.7359, 0.7310
EUR/ JPY 168.88 169.17, 168.15
EUR/ GBP 0.7877 0.7892, 0.7856
EUR/ CHF 1.6332 1.6368, 1.6311
GBP/ JPY 214.27 214.50, 213.36
CHF/ JPY 103.35 103.39, 103.03
Support Resistance Support Resistance
EUR/ USD USD/ JPY
L1. 1.5225 1.5645 101.95 106.60
L2. 1.5035 1.5840 100.60 109.95
L3. 1.4805 1.6020 98.75 113.30
GBP/ USD USD/ CHF
L1. 1.9520 1.9760 1.0135 1.0565
L2. 1.9395 1.9880 0.9990 1.0730
L3. 1.9100 2.0000 0.9875 1.1040
AUD/ USD USD/ CAD
L1. 0.9380 0.9655 0.9870 1.0175
L2. 0.9215 0.9735 0.9715 1.0370
L3. 0.9005 1.0115 0.9465 1.0520
NZD/ USD EUR/ JPY
L1. 0.7700 0.8105 160.60 166.65
L2. 0.7595 0.8420 158.35 167.75
L3. 0.7275 0.8665 154.80 168.95
EUR/ GBP EUR/ CHF
L1. 0.7740 0.8120 1.5975 1.6250
L2. 0.7555 0.8310 1.5855 1.6470
L3. 0.7440 0.8570 1.5730 1.6760
GBP/ JPY CHF/ JPY
L1. 200.60 208.50 98.70 103.30
L2. 197.55 211.35 97.00 105.40
L3. 192.70 217.15 95.85 107.70
SCHEDULE
Friday, 1 August 2008
all times GMT
(last release in parentheses)
0030 Australia July TD Securities inflation (0.5% m/m)
0030 Australia July TD Securities inflation (4.8% y/y)
0630 Australia July RBA commodity index SDR (38.2% y/y)
0745 Italy July PMI, manufacturing (46.9)
0750 France July PMI, manufacturing
0755 Germany July PMI, manufacturing
0800 Eurozone July PMI, manufacturing
0830 UK July PMI, manufacturing (45.8)
1230 US July non-farm payrolls, change
1230 US July unemployment rate
1230 US July average hourly earnings
1230 US July average weekly hours
1400 US July ISM, manufacturing (50.2)
1400 US July ISM, prices paid (91.5)
1400 US June construction spending (-0.4% m/m)
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