BillyT's Forex Currency-Trading WEEKLY MARKET RECAP for w/e 12 August 2007

BillyT's Forex Currency-Trading WEEKLY MARKET RECAP for w/e 12 August 2007

EURO:

The euro depreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.3640 level and was capped around the $1.3840 level. The pair lost about 80 pips last week. The FOMC kept the fed funds rate at 5.25% and reported “Although the downside risks to growth have increased somewhat, the FOMC's predominant policy concern remains the risk that inflation will fail to moderate as expected.” The ECB injected €95 billion to support the markets on account of subprime contagion and BNP Paribas suspended three asset-backed securities firms. The Fed injected €24 billion via repos on Thursday, an indication it will assure liquidity conditions remain sufficient, and added another US$ 19 billion on Friday. The ECB noted monetary policy remains accommodative and reiterated “strong vigilance” is needed to counter inflation. ECB’s Kranjec reiterated the ECB is learning towards a hike next month and said the U.S. subprime mortgage meltdown “could negatively impact household demand (in the eurozone).”

Data released in the U.S. last week saw Q2 non-farm productivity rise 1.8%, up from +0.7% in Q1; unit labour costs were up 2.1% in Q2 and +4.5% y/y – the largest annual gain since Q3 2000; June wholesale inventories were up 0.5% with wholesale sales up 0.6%; weekly initial jobless claims were up 7,000 to 316,000; continuing jobless claims were up 39,000 to 2.559 million; and July import prices were up 1.5% m/m and 2.8% y/y with the ex-petroleum component up +0.2% m/m and +2.8% y/y.

Data released in the eurozone last week saw German industrial production was off 0.4% m/m and up +5.1% y/y; German manufacturing orders were up 4.6% m/m in June; Germany’s trade surplus printed at €16.5 billion; and French industrial production was off 0.5% m/m.

YEN:

The yen depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the ¥119.80 level and was supported around the ¥117.15 level. The pair gained about 10 pips last week. The Nikkei 225 stock index closed the week at ¥16,764.09. The government kept its assessment of the economy unchanged but upgraded its view of employment and exports. BoJ’s Policy Board may lift the overnight call rate by +25bps to +0.75% but a clouded political landscape and weak machinery orders may delay same. The Japanese government lifted its GDP forecast to +2.1% from +2.0% in the year to March 2008 and reduced its inflation forecast to +0% from +0.5% in the fiscal year to March 2008. Traders unwound short yen carry trades on growing subprime woes and BoJ added ¥1 trillion to the money markets on Friday as the overnight call rate traded above the 0.50% target rate.

Data released in Japan last week saw the June index of leading economic indicators rise to 80.0 in June; the June coincident index improved to 77.8; core private sector machinery orders were off 10.4% m/m; July bank lending was up +0.3% y/y; the July money supply was up 2% y/y; foreign reserves rose to a record US$ 923.72 billion in July; the economy watchers’ index fell to 44.7 in July; foreign investors were net sellers of Japanese equities last week and were net buyers of Japanese bonds; the July wholesale prices goods index rose 2.1% y/y; June industrial output was up 1.3% m/m; July corporate failures were off 7.1% m/m; and the July consumer confidence index receded to 44.4 from.

CHINESE YUAN:

The Chinese yuan depreciated vis-à-vis the U.S. dollar last week as the greenback closed at CNY 7.5749 the over-the-counter market, up from CNY 7.5670. The government reported 2007 CPI is likely to be under 4% with H2 economic growth seen around 11.3%. Talk by some lower level Chinese officials that they may reduce their U.S. Treasury holdings was responsive to continued trade pressures from the U.S. Congress. PBOC acknowledged the economy is overheating and pledged to “moderately tighten monetary policy.” The discount on 1-year USD/RMB forward swaps widened to 3,980. PBOC’s Fan Gang indicated FX reserves reached US$ 1.4 trillion.

Data released in China last week saw the July trade surplus at US$ 24.36 billion while the July producer price index was up 2.4% y/y.

BRITISH POUND:

The British pound depreciated vis-à-vis the U.S. dollar last week as cable tested bids around the US$ 2.0150 level and was capped around the $2.0460 level. The pair lost about 160 pips last week. NIESR estimated the economy was up +0.8% in the three months to July. BoE’s inflation report said a CPI of 2.0% in two years is possible if the repo rate is lifted to 6.0% in the coming months.

Data released in the U.K. last week saw BRC July retail sales up 1.2% y/y; June manufacturing output up +0.2% m/m; REC/ KPMG salary inflation reached its highest level since 1998; and the June trade balance improved to -£6.3 billion.

SWISS FRANC:

The Swiss franc depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.2015 level and was supported around the CHF 1.1815 level. The pair gained about 70 pips last week. SNB announced its monetary policy remains unchanged but some traders believe the SNB may delay next month’s rate hike if the ECB delays its next +25bps hike.

Data released in Switzerland last week saw the July unemployment rate unchanged at 2.5% and July consumer sentiment fell to +15 from +20 in April.

CANADIAN DOLLAR:

The Canadian dollar appreciated vis-à-vis the U.S. dollar last week as the greenback tested bids around the C$ 1.0460 level and was capped around the C$ 1.0640 level. The pair lost about 45 pips last week. Bank of Canada assured the markets it will provide liquidity “to support the stability of the Canadian financial system” following heightened global volatility and worsening credit conditions.

Data released in Canada last week saw June new housing prices up 7.8% y/y while the July unemployment rate fell to 6%, its lowest level since 1974.

AUSTRALIAN / NEW ZEALAND DOLLAR:

The Australian dollar depreciated vis-à-vis the U.S. dollar last week as the Aussie tested bids around the US$ 0.8400 figure and was capped around the US$ 0.8660 level. The pair lost about 50 pips last week. RBA lifted the discount rate to near 11-year highs, up +25bps to 6.50%. RBA injected A$ 4.95 billion into the banking system to counter credit conditions.

Data released last week saw the July AIG construction index fall 2.5 index points to 48.8; July ANZ jobs ads were off 0.5% m/m in July and up 32.9% y/y; June housing finance by volume rose 1.1% m/m; and the July jobless rate was steady at 4.3%.

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