Fundamental Outlook

€

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4905 level and was capped around the $1.5085 level. The common currency has not traded this low since February. A further decline in crude oil prices for September delivery added to the pair’s downturn. Traders briefly priced in a small bid to the euro after European Central Bank member Liebscher reported there is “no room for complacency” on EMU-15 interest rates and high inflation. In contrast, ECB President Trichet last week provided a pessimistic economic growth forecast for the eurozone. Some traders are beginning to price in the possibility that the ECB’s next rate move will be lower rather than higher, and this is also adding to the euro’s woes. Data released in the eurozone today saw German July wholesale prices up 1.4% m/m and 9.9% y/y while French industrial production fell 0.4% m/m. In U.S. news, traders await June trade balance data followed by July retail sales data on Wednesday. Euro bids are cited around the US$ 1.5175 levels.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥109.55 level and was capped around the ¥110.40 level. The pair barely established a new multi-month high dating to 2 January. Economy minister Yosano reported the Fukuda government will issue its economic stimulus package details by the end of the month but the amount of the stimulus remains unknown at this point in time. Most traders believe Bank of Japan’s Policy Board will keep the overnight call rate unchanged at 0.50% for several months while a growing minority of dealers believe the central bank may be forced to expand monetary policy. The Nikkei 225 stock index gained 1.99% to close at ¥13,430.91. Dollar bids are cited around the ¥106.40 level. The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥163.65 level and was capped around the ¥165.55 level. The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥209.70 and ¥101.10 levels, respectively. The Chinese appreciated marginally vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8577 in the over-the-counter market, down from CNY 6.8588. Data released in China today saw the January - July trade surplus print at US$ 123.72 billion with July’s right around US$ 25.28 billion. Also, July PPU was up 10.0% y/y.

₤

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9105 level and was capped around the $1.9255 level. Cable reached its lowest level since November 2006 as traders continue to speculate that Bank of England’s Monetary Policy Committee will need to reduce borrowing costs soon. Data released in the U.K. contributed to that view as it was reported that June output prices were up 0.4% m/m and 10.2% y/y, the highest annual rate since at least 1986 but below expectations. Additionally, input prices were off 0.6% m/m and 30.1% y/y. Other data saw the June trade in goods deficit widen to ₤7.7 billion. Cable bids are cited around the $1.8615 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7795 level and was capped around the ₤0.7835 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0870 level and was supported around the CHF 1.0740 level. The pair reached its highest level since February before coming off. U.S. dollar offers are cited around the CHF 1.1135 level. The euro and British pound slumped vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6165 and CHF 2.0670 levels, respectively.