By GCI Fx Research
€
The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4295 level and was supported around the $1.4170 level. The common currency came within 40 pips of establishing a multi-month high before profit-taking ensued. Traders moved back into U.S. dollars during the North American session after it was reported the U.S. housing market improved further with the sales of new single-family homes climbing 11% in June to an annualized rate of 384,000 while June bulding permits were upwardly revised to +10% from +8.7%. Tere is a growing sense that the U.S. residential real estate market have bottomed out but in contrast, there is a significant amount of U.S. commercial real estate debt coming due over the next year and this may dramatically impact the economy. U.S. equity markets finished modestly on the plus side today with many dealers indicating stronger investor sentiment. Other data released in the U.S. today saw the Chicago Fed’s Midwest manufacturing index decline 0.3% to 78.1, the lowest reading since 1993. In eurozone news, the European Central Bank reported its annual growth rate of private-sector loans in the eurozone receded to a record low of 1.5% in June from 1.8% in May. German research institute Ifo reported large banks have tightened their lending policies in Germany with big business suffering as a result. Other data saw the German August GfK consumer sentiment index improve to 3.5 from 3.0 in July while EMU-16 M3 money supply growth improved 3.5% y/y in June. Additionally, it was reported German import prices were up 0.4% in June and off 11.4% y/y. Euro bids are cited around the US$ 1.3435 level.
¥/ CNY
The yen depreciated further vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥95.35 level and was supported around the ¥94.65 level. The yen extended recent losses as the U.S. dollar traded near 2009 lows relative to major counterparts, reducing safety demand for U.S. dollars and encouraging Japanese investors to allocate capital to higher-yielding currencies. Another factor contributing to the yen’s losses is the decline in currency volatility with implied volatility on options for the majors at around 13%, their lowest level since 26 September 2008. The lower volatility is creating demand for so-called carry trades in which yen are borrowed and then invested in higher-yielding opportunities overseas. The political drama in Japan remains quite active ahead of the General Election planned on or around 30 August. The opposition Democratic Party of Japan is expected to have a very strong showing at the polls, possibly defeating the Liberal Democratic Party of Japan. It remains unclear exactly how a DPJ victory could influence the yen but one possibility is further yen weakness on the premise the left-leaning DPJ may increase borrowing through Japanese government bonds. DPJ officials state they have no plans to shift Japan’s foreign reserves at this time. Data released in Japan overnight saw the June corporate service price index decline 3.2% y/y. The Nikkei 225 stock index climbed 0.59% to close at ¥10,088.66. 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 ¥136.10 level and was supported around the ¥134.25 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥157.45 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥89.30 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8283 in the over-the-counter market, down from CNY 6.8284. The U.S. and China convened another meeting of the U.S.-China Strategic and Economic Dialogue today. Vice Premier Wang Qishan did not directly address the U.S. dollar and massive U.S. stimuli in public comments today but most China-watchers believe China will push the Obama administration to make sure its massive holdings of U.S. Treasury securities do not erode in value. Wang also reported China’s gross domestic product expanded at a 7.1% rate in the first half of 2009, partially in response to the “effective” US$ 585 billion stimulus China implemented.
Daily Market Commentary provided by GCI Financial Ltd.
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