Fundamental Outlook at 1400 GMT (EDT + 0400)

By GCI Fx Research

The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4095 level and was supported around the $1.4010 level.  Strong gains in U.S. equities markets led to a difficult day for the U.S. dollar as risk appetite expanded and the greenback’s safe haven appeal diminished. The International Monetary Fund reported recessionary problems in the eurozone are receding.  The IMF now foresees a 4.8% decline in gross domestic product in the eurozone this year.  Data released in the U.S. today saw weekly initial jobless claims up 25,000 to 584,000 while continuing jobless claims were off 54,000 to 6.197 million.  The Fed released its July Beige Book yesterday and reported the recession is easing in most regions of the country, noting “the pace of decline has moderated since the last report or that activity has begun to stabilize, albeit at a low level.”  In eurozone news, German July unemployment fell a surprising 6,000 on an adjusted basis and were up 52,000 on a non-adjusted basis, equivalent to 8.2% of the workforce.  Other data released today saw German June plant, machinery orders slump 46% y/y.  The European Commission reported business and consumer confidence in the eurozone improved in July with the overall Economic Sentiment Indicator rising sharply to an eight-month high of 76.0 from 73.2 in June.  Similarly, July industrial confidence improved to -30 from -32 in June and consumer confidence was lifted to -23 from -25.  Euro bids are cited around the US$ 1.3900 figure.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥95.65 level and was supported around the ¥94.80 level.  Data released in Japan overnight saw June industrial output climb 2.4% m/m and 8.3% q/q in April-June, – the largest jump since 1953 – while the July trade deficit printed at ¥38.415 billion in the first ten days of July, off 18.0% y/y.  Bank of Japan Policy Board member Noda said the central bank has no plans to change its current easy monetary policy and remains sensitive to an increase in long-term interest rates that could inhibit the economic recovery.  Noda added “As corporate earnings conditions remain severe, uncertainty over final demand is high even after progress in inventory adjustment, and concerns over fundraising are not receding.”  Some of the BoJ’s temporary liquidity measures will expire on 31 December as of now and Noda said keeping the measures for some time could damage the economy.  Noda is one of the more hawkish members of the Policy Board and his remarks evidence caution at the central bank.  The Nikkei 225 stock index climbed 0.51% to close at ¥10,165.21.  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 ¥134.70 level and was supported around the ¥133.20 level.  The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥158.00 figure while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.90 level. In Chinese news, the U.S. dollar lost ground vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8293 in the over-the-counter market, up from CNY 6.8285.  Chinese officials made it clear overnight that they will continue to keep monetary policy loose and this supported international equity markets.  Traders had noted chatter yesterday suggesting China may begin to restrict bank lending further.

Daily Market Commentary provided by GCI Financial Ltd.

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