BillyT's Forex Daily Currency-Trading Reviews for 14 August 2007

BillyT's Forex Daily Currency-Trading Reviews for 14 August 2007

EURO:

The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3560 and was capped around the $1.3625 level. Technically, today’s intraday high was right around the 38.2% retracement of the move from $1.3260 to $1.3850. Data released in the U.S. today saw July producer price inflation rise 0.6% m/m, more-than-expected, while core prices were up just 0.1%, below expectations. Core PPI prices are up 2.3% y/y, the fastest annual gain since September 2005. These data suggest the Federal Open Market Committee will find it difficult to justify a monetary easing should ongoing credit dislocations warrant same. Also, the U.S. trade deficit receded to a four-month low of -US$ 58.1 billion. In eurozone news, European Central Bank President Trichet today said “We have provided in particular the liquidity which was needed to permit an orderly functioning of the money market. We experience a period of market nervousness, a period in which we see increased volatility in many markets and a significant re-appreciation of risks. In some respects, what has been observed can be interpreted as a normalization of the pricing of risk.” Traders interpreted this as an indication the ECB is becoming optimistic about the ongoing credit problems in the market and will begin to withdraw liquidity from the system. Trichet’s remarks were amplified by ECB member Weber. Data released in the eurozone today saw EMU-13 GDP growth of just 0.3% q/q and 2.5% y/y in Q2, the weakest pace since Q1 2005. Data to be released on Thursday include the final July harmonized inflation figures for the eurozone and if they come in weaker-than-expected, they could provide the ECB will enough breathing room to delay their next monetary tightening. Euro bids are cited around the US$ 1.3715 level.

YEN:

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥117.70 level and was capped around the ¥118.50 level. Technically, today’s intraday high was right around the 61.8% retracement of the move from ¥115.15 to ¥124.15. Bank of Japan drained ¥1.6 trillion in money market liquidity today that it had injected over the past several business days to counter ongoing global liquidity issues. Data released in Japan today saw the June tertiary index rise 0.1% m/m, the third increase in six months. Traders are still split as to whether or not Bank of Japan’s Policy Board will raise the overnight call rate by +25bps this month to +0.75%. Many traders now see September as being a more likely time frame given the current global repricing of risk in the credit markets. The BoJ Policy Board will convene on 22-23 August. The Nikkei 225 stock index gained +0.27% to close at ¥16,844.61. Dollar bids are cited around the ¥117.25 level. The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥159.75 level and was capped around the ¥161.00 figure. The British pound and Swiss franc lost ground vis-à-vis the yen as the crosses tested bids around the ¥235.35 and ¥97.40 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.5760 in the over-the-counter market, down from CNY 7.5815. Data released in China saw July retail sales print at CNY 699.8 billion, up 16.4% y/y, while July wholesale prices accelerated 6.1% y/y from June’s 5.4% y/y climb. Many traders believe People’s Bank of China will be forced to tighten monetary policy further in the coming days or weeks.

BRITISH POUND:

The British pound extended its recent sharp sell-off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9980 level and was capped around the $2.0130 level. Technically, today’s intraday high was right around the 50% retracement of the move from $1.9620 to $2.0655. Data released in the U.K. today saw consumer price inflation fall dramatically last month, printing below the Bank of England’s 2.0% target rate for the first time in fifteen months. Annual CPI growth decelerated to 1.9% in July from 2.4% in June, the largest monthly decline since May 2002. These data suggest Bank of England’s Monetary Policy Committee will keep the repo rate on hold for the time being and will likely lift it by +25bps to 6.00% by the end of the year. Other data released today saw RICS house prices expand in July below their long-term average. Cable bids are cited around the US$ 1.9865 level. The euro gained ground vis-à-vis the British pound as the single currency tested offers around the £0.6795 level and was supported around the £0.6755 level.

SWISS FRANC:

The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2115 level and was supported around the CHF 1.2025 level. Technically, today’s intraday low was right around the 61.8% retracement of the move from CHF 1.2165 to CHF 1.1815 and the pair reached its highest level since 27 July. Dollar offers are cited around the CHF 1.2140 level. The euro and British pound came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6375 and CHF 2.4135 levels, respectively.

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