U.S. Forex Market Commentary

EURO

The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3570 level and was capped around the $1.3625 level. Technically, today’s intraday high was just above the 23.6% retracement of the move from $1.2865 to $1.3850. Data released in the U.S. today saw ADP private sector jobs climb 38,000 in August, the smallest monthly ADP job increase in more than four years and below expectations. These data suggest that Friday’s U.S. non-farm payrolls tally for August could be on the weak side and possibly below the 110,000 estimate projected by many economists. It was also reported that Challenger job cuts were up 85.2% m/m in August to 79,459, a reflection of the dire employment situation in the U.S. mortgage and housing sectors. A weak employment report this week will increase pressure on the Federal Reserve to deliver additional monetary expansion at the Federal Open Market Committee meeting on 18 September. Other data released in the U.S. today saw July pending home sales fall 12.2% m/m to their lowest level in nearly six years. In eurozone news, traders await tomorrow’s European Central Bank interest rate decision and accompanying remarks from ECB President Trichet. Most traders believe the ECB will keep the refinancing rate at 4.0% and believe the ECB will lift rates by +25bps by the end of the year. Many money market traders conclude the ECB is not providing sufficient cash to the interbank market because market conditions remain elevated. Data released in the eurozone today saw the EMU-13 August PMI services index print at 58.0 while EMU-13 July retail sales were up 0.1% m/m and 0.5% y/y. Euro bids are cited around the US$ 1.3530 level.

JPN/CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥115.40 level and was capped around the ¥116.45 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from ¥124.15 to ¥111.60. The Japanese government reported that U.S. subprime woes are not having a major impact on the Japanese economy but warned the short yen carry trade could unwind if global problems become exacerbated. The Nikkei 225 stock index lost 1.60% to close at ¥16,158.45. Dollar bids are cited around the ¥114.55 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥156.75 level and was capped around the ¥158.65 level. The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥231.90 and ¥95.20 levels, respectively. The Chinese yuan was unchanged vis-à-vis the U.S. dollar as the greenback closed at CNY 7.5497 in the over-the-counter market. Goldman Sachs reported China is likely to raise interest rates twice by the end of the year to counter inflation.

STERLING

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 2.0040 level and was capped around the $2.0160 level. Technically, today’s intraday high was right around the 50% retracement of the move from $2.0655 to $1.9650. Data released in the U.K. today saw the PMI services sector survey improve to 57.6 from 57.0 in July. Also, REC August wage pressures eased in August and Nationwide August consumer confidence moved lower. Additionally, BRC reported August shop prices were unchanged m/m and up 0.4% y/y and RICS reported house affordability has fallen to its lowest level in seventeen years. All eyes are on the Bank of England Monetary Policy Committee tomorrow with policymakers expected to keep its headline repo rate at 5.75%. The BoE today announced measures to inject liquidity into the money market by raising its aggregate reserves target by 6%. This follows a major spike in three-month sterling Libor market rates to more than 100bps above BoE’s target rate of 5.75%. The BoE pledged to offer additional liquidity as needed but warned it has little influence over long-dated maturities. BoE reported “Those (longer-dated) spreads have risen significantly in all major financial markets since August 9, reflecting the difficulty of valuing a variety of asset-backed instruments which, for the moment, has reduced liquidity. The sources of these problems does not, therefore, lie in a lack of central bank liquidity.” Cable bids are cited around the US$ 1.9915 level. The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.6750 level and was capped around the ₤0.6770 level.

SWISS

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.2045 level and was capped around the CHF 1.2135 level. Technically, today’s intraday high was right around the 50% retracement of the move from CHF 1.2470 to CHF 1.1815. The August unemployment rate will be released tomorrow. Dollar offers are cited around the CHF 1.2220 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6445 and CHF 2.4295 levels, respectively.

AUD/NZD

The Australian dollar slumped vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.8180 level and was capped around the $0.8285 level. Technically, today’s intraday high was just above the 50% retracement of the move from $0.8865 to $0.7675. As expected, Reserve Bank of Australia kept its cash target rate at 6.50%. Data released in Australia today saw the performance of services index recede to 51.6 in August. Australian dollar bids are cited around the US$ 0.8160 level. The New Zealand dollar came off vis-à-vis the U.S. dollar as the kiwi tested bids around the US$ 0.6860 level and was capped around the $0.6970 level. New Zealand dollar bids are cited around the US$ 0.6760 level.

CAD

The Canadian dollar depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.0565 level and was supported around the C$ 1.0480 level. As expected, Bank of Canada left its overnight rate unchanged at 4.50%. Prior to the global liquidity crisis, many traders believe BoC would lift rates another +25bps. Notably, BoC omitted the phrase some “modest further” tightening of rates may be necessary and added it “will continue to closely monitor evolving economic and financial developments.” Most traders construed BoC’s statement to be a little more dovish than expected. U.S. dollar offers are cited around the $1.0705 level.