BillyT's Forex Currency-Trading WEEKLY MARKET RECAP for w/e 19 August 2007

BillyT's Forex Currency-Trading WEEKLY MARKET RECAP for w/e 19 August 2007

EURO:

The euro depreciated vis-à-vis the U.S. dollar last week as the single currency tested bids around the $1.3360 level and was capped around the $1.3705 level. The pair lost about 190 pips last week. The Fed lowered the discount rate by +50bps and “judges that the downside risks to growth have increased appreciably.” Most traders now see a 25bps or 50bps cut in the Fed funds target rate no later than the FOMC’s next meeting on 18 September. A move to raise the cap on assets held by Fannie Mae and Freddie Mac may be required. ECB’s Trichet and Weber talked up improving liquidity conditions in credit markets. US$ Libor traded above the federal funds target rate last week, evidencing ongoing credit market nervousness. Germany’s DIW institute sees EMU-13 Q3 GDP up 0.4% but sees 2007 growth below 2006’s level of 3.0%. News that U.S. mortgage heavyweight Countrywide was downgraded and could file for bankruptcy was a primary focus.

Data released in the U.S. last week saw June business inventories were up 0.4%; July headline retail sales were up 0.3% and +0.4% ex-autos; July headline retail sales were up 3.2% y/y, +4.4% on ex-autos; and +5.2% ex-autos and ex-gasoline; July PPI was up 0.6% m/m with core prices up +0.1%; July core PPI was up 2.3% y/y; the U.S. June trade deficit fell to –US$ 58.1 billion; July consumer prices were up +0.1% m/m with core inflation up +0.2%; July industrial output was up +0.3% m/m; U.S. existing home sales fell 11% y/y; net foreign capital inflows totaled US$ 58.8 billion in June; the August Empire State manufacturing index improved to 25.1; the August Philly Fed index printed at 0.0 and the prices paid sub-index fell; July housing starts fell 6.1% to 1.381 million units; July construction permits were off 2.8% to 1.373 million; new housing starts and constructions permits were off 20.9% y/y and 22.6% y/y, respectively; weekly initial jobless claims were up 6,000 to 322,000; continuing jobless claims were up 17,000 to 2.567 million; and the University of Michigan August consumer sentiment index fell to 83.3.

Data released in the eurozone last week saw German July wholesale prices up 0.4% m/m and 2.6% y/y; EMU-13 GDP grew 0.3% q/q and 2.5% y/y; EMU-13 July harmonized inflation was up 1.8% y/y; German July final CPI was up 0.4% m/m and 1.9% y/y; and the July producer price index was off 0.1% m/m and up 1.1% y/y.

YEN:

The yen appreciated sharply vis-à-vis the U.S. dollar last week as the greenback tested bids around the ¥111.60 level and was capped around the ¥118.55 level. The pair lost about 400 pips last week. The Nikkei 225 stock index closed the week at ¥15,273.68. BoJ injected liquidity last week including a ¥1.2 trillion infusion on Friday. Short yen carry trades unwound and rumours abound the BoJ could have stymied the yen’s gains through intervention. Most traders believe the BoJ’s Policy Board will not raise rates this week.

Data released in Japan last week saw Q2 GDP was up 0.1% and +0.5% annualized; July Tokyo and Osaka condo sales were off 10.0% and 22.6%; the June tertiary index rose 0.1% m/m; June revised average pay was off 0.9% y/y; the June index of leading economic indicators was downwardly revised to 72.7 with the coincident index up to 80.0; and July department store sales were off 4.3% y/y.

CHINESE YUAN:

The Chinese yuan depreciated vis-à-vis the U.S. dollar last week as the greenback closed at CNY 7.5951 in the over-the-counter market, up from CNY 7.5749. CPI blistered higher to its strongest level since February 1997. PBOC reiterated USD is an important component of its reserves portfolio and will likely tighten policy in the near future. China’s trade surplus may reach US$ 275 billion this year.

Data released in China last week saw July CPI was 5.6% y/y; actual foreign direct investment was at US$ 36.93 billion this year through July; property prices in 70 major Chinese cities were up 6.3% y/y in Q2; July retail sales printed at CNY 699.8 billion, up 16.4% y/y; July wholesale prices accelerated 6.1% y/y; industrial value-added output was up 18.5% y/y in the January – July period; and urban fixed-asset investment was up 26.6% y/y between January and July.

BRITISH POUND:

The British pound depreciated vis-à-vis the U.S. dollar last week as cable tested bids around the US$ 1.9650 level and was capped around the $2.0260 level. The pair lost about 410 pips last week. CPI printed below BoE’s 2.0% target rate for the first time in fifteen months and could delay the MPC next rate hike by at least a month. Chancellor Darling called the U.K. economy “strong.”

Data released in the U.K. last week saw producers’ output prices up +0.2% m/m and +2.4% y/y in June; core output was up +0.2% m/m and +2.3% y/y; input prices were off 0.5% m/m and 0.1% y/y; June annual house price inflation was up 12.1%; central London July retail sales were up 11.6% y/y; July CPI fell to 1.9%; RICS July house prices expanded below their long-term average; June earnings growth fell to +3.3% in the three months to June; the July claimant count of unemployment fell by 8,500 with the unemployment rate at 2.6%; the ILO measure of unemployment printed at 5.4% in July; July retail sales were up 0.7% m/m; the July retail sales deflator was off 1.1% y/y; English housing starts were off in Q2; and IRS pay deals climbed 3.5% in the three months to the end of July.

SWISS FRANC:

The Swiss franc depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the CHF 1.2215 level and was supported around the CHF 1.1970 level. The pair gained about 80 pips last week. Safe haven bids supported the franc and many traders believe SNB will not tighten policy next month.

Data released in Switzerland last week saw June retail sales were up 5.1% y/y.

CANADIAN DOLLAR:

The Canadian dollar depreciated vis-à-vis the U.S. dollar last week as the greenback tested offers around the C$ 1.0865 level and was supported around the C$ 1.0485 level. The pair gained about 85 pips last week. Bank of Canada widened the list of eligible collateral it accepts for its credit facilities and maturities for asset-backed commercial paper transactions were extended. Liquidity conditions for the loonie improved at the end of the week.

Data released in Canada last week saw CMHC predict housing starts will fall 3.2% to 220,000 in 2007; June manufacturing exports sank 1.8% to US$ 48.6 billion for the third consecutive month in June; foreigners sold C$ 4.52 million in Canadian securities in June; and June wholesale trade rose 0.2%.

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$ 0.7675 figure and was capped around the US$ 0.8505 level. The pair lost about 485 pips last week. RBA intervened to support the A$ with RBA boss Stevens pledging more as conditions warrant. The loonie’s sell-off last week was the pair’s worst since the A$ freely floated in 1984. RBA’s quarterly monetary policy statement was more hawkish-than-expected and the RBA lifted its inflation forecast to the upper end of its 2% to 3% range.

Data released last week saw the NAB July business confidence index fall to +12; the Q2 wage cost index was up 1.1% q/q and 4.0% y/y; and the August Westpac consumer sentiment index fell 8.1% to 111.1.

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