Daily Market Commentary - Fundamental Outlook

€

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5485 level and was supported around the $1.5390 level. The common currency gave back some gains during the North American session after crude oil futures slipped back to the $124 handle after trading as high as US$ 126.20, a new lifetime high. Data released in the U.S. today saw the March trade deficit print at US$ 58.2 billion, down 5.7% from -US$ 61.7 billion in February on account of weaker domestic demand. Traders also lifted the euro higher following yesterday's hawkish remarks from European Central Bank President Trichet who did not go as far as many traders expected in highlighting the downside risks to economic growth in the eurozone. Traders have pared back their expectation as to when EMU-15 interest rates will be lowered. The ECB issued a Lending Survey today that confirmed lending activity to the household and corporate sectors is falling on account of the global credit crunch. Data released in the eurozone today saw German April wholesale price inflation up 0.6% m/m and 6.9% y/y. Euro bids are cited around the US$ 1.5230 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥102.60 level and was capped around the ¥103.95 level. The pair reached its lowest level since 18 April as risk aversion mounted following recent sell-offs in global trading markets, reducing demand for overseas assets by Japanese accounts. There is less incentive for short yen carry trades when overseas markets experience weakness. Data released in Japan overnight saw the March leading index fall to 20 from 54.5 in February while the coincident index fell to 33.3 from a revised 70.0 in February. Economic and fiscal policy minister Ota expressed concerns about the impact of escalating energy prices on consumer sentiment and corporate profits. Traders will closely monitor the speech from Bank of Japan Governor Shirakawa on Monday following the central bank's move to a neutral policy stance last month from a rate normalization stance. BoJ is expected to keep the overnight call rate unchanged at 0.50% for the foreseeable future. The government will released Q4 GDP data on 16 May and many economists expect annualized growth around 1.5%. It was also reported overnight that Japan's foreign exchange reserves fell for the first time in eleven months, declining to US$ 1.00 trillion at the end of April. The Nikkei 225 stock index lost 2.06% to close at ¥13,655.34. Dollar bids are cited around the ¥101.35 levels. The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥158.60 level and was capped around the ¥160.05 level. The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥199.80 and ¥98.55 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9918 in the over-the-counter market, down from CNY 7.0052. Data released in China saw April producer price inflation up 8.1% y/y while the April trade balance was around US$ 16.66 billion.

₤

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9460 level and was capped around the $1.9570 level. The pair reached its lowest level since 21 February following economic data that confirmed court orders for house repossessions were up an annual 17% in the first three months of the year, and up 9% q/q. These data evidence problems being faced by U.K. homeowners and the mortgage industry as a whole. Other data released today saw U.K. IDS pay deals reach their highest level since August 1998 in the three months to April. Cable bids are cited around the US$ 1.9360 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7940 level and was supported around the ₤0.7870 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0390 level and was capped around the CHF 1.0515 level. Technically, today's intraday high low was just above the 50% retracement of the move from CHF 1.1105 to CHF 0.9645. U.S. dollar offers are cited around the CHF 1.0760 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6065 and CHF 2.0235 levels, respectively.

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