BillyT's Forex Daily Currency-Trading Reviews for 27 July 2007

BillyT's Forex Daily Currency-Trading Reviews for 27 July 2007

EURO:

The euro extended recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3635 level and was capped around the $1.3750 level. Technically, today’s intraday high was just above the 38.2% retracement of the move from $1.3260 to $1.3850. Data released in the U.S. today saw Q2 GDP data expanded at its fastest pace in more than one year, up an annualized 3.4% - above expectations and above the 0.6% rate of growth from Q1. Also, the core PCE price index rose 1.4% in Q2, down from the 2.4% increase in Q2 and the slowest pace since Q2 2003 while the core PCE price index was up 2.0% - the top end of the Fed’s perceived comfort zone. These data suggest there is increasing latitude for the Federal Reserve to ease monetary policy later this year, especially as price pressures continue to recede. At present, the fed funds futures market is pricing in about a 45% chance the Federal Open Market Committee will lower rates by October and about an 80% chance the Fed will cut rates by the end of the year. The greenback continues to rally on account of growing subprime mortgage jitters and the repricing of risk in other credit markets. Other data released today saw the final July University of Michigan consumer sentiment index improve to 90.4 from 85.3 in June with the current conditions and expectations indices also posting solid gains. In eurozone news, EMU-13 June private sector credit growth jumped 10.8% y/y from 10.4% y/y and these data will help the European Central Bank to justify its likely +25bps rate hike in September. Data released in the eurozone today saw German GfK consumer confidence improve to +8.7 in August from +8.5 in July while the GfK expectations index declined. Euro bids are cited around the US$ 1.3555 level.

YEN:

The yen lost ground vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥119.30 level and was supported around the ¥118.00 figure. Data released in Japan overnight saw the nationwide core consumer price index decline for the fifth consecutive month in June, off 0.1% y/y, while the headline CPI measure was off 0.2% m/m. In the Tokyo area, July core CPI was off 0.1% y/y and overall CPI was off 0.1%. Albeit these data evidence some lingering deflationary pressures in the Japanese economy, they are likely not weak enough to derail Bank of Japan’s likely +0.25% rate hike in August. All eyes are on this weekend’s Upper House election in Japan with the ruling Liberal Democratic Party expected to cede power for the first time since 1998. The Nikkei 225 stock index lost 2.36% to close at ¥17,283.81. Dollar bids are cited around the ¥117.30 level. The euro lost ground vis-à-vis the yen as the single currency tested bids around the ¥161.70 level and was capped around the ¥163.90 level. The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥240.50 and ¥97.80 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.5623 in the over-the-counter market, down from CNY 7.5655. The U.S. Senate yesterday approved legislation that requires the U.S. Treasury to negotiate with countries that have “fundamentally misaligned” currencies and to impose penalties on countries that do not take action.

BRITISH POUND:

The British pound fell sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 2.0275 level and was capped around the $2.0495 level. Technically, today’s intraday low was just above the 38.2% retracement of the move from $1.9620 to $2.0655. Data released in the U.K. today saw Land Registry house price inflation in England and Wales up 0.4% m/m in June, down from +0.7% in May. Also, NIESR reported the U.K. economy will likely slow in 2008 and 2009. Cable bids are cited around the US$ 2.0140 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.6735 level and was supported around the £0.6705 level.

SWISS FRANC:

The Swiss franc came off vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.2130 level and was supported around the CHF 1.2025 level. Data released in Switzerland today saw the July KOF leading indicator rise to +2.13 from a revised +2.08 in June. These data suggest the economic growth cycle will continue over the next two quarters in Switzerland. Dollar offers are cited around the CHF 1.2215 level. The euro and British pound slumped vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6510 and CHF 2.4535 levels, respectively.

AUSTRALIAN DOLLAR /NEW ZEALAND DOLLAR:

The Australian dollar fell sharply vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.8560 level and was capped around the $0.8765 level. Stops were hit below the $0.8600 figure, representing the 38.2% retracement of the move from $0.8160 to $0.8870. Australian dollar bids are cited around the US$ 0.8515/ 0.8430 levels. The New Zealand dollar fell sharply vis-à-vis the U.S. dollar as the kiwi tested bids around the US$ 0.7690 level and was capped around the $0.7870 level. Data released in New Zealand today saw the trade deficit widen in the past year to June, printing at –NZ$ 6.23 billion. New Zealand dollar bids are cited around the US$ 0.7670/ 0.7570 levels.

CANADIAN DOLLAR:

The Canadian dollar slumped vis-à-vis the U.S. dollar today as the greenback tested offers around the C$ 1.0615 level and was supported around the C$ 1.0525 level. Technically, today’s intraday low was right around the 23.6% retracement of the move from C$ 1.1680 to C$ 1.0340 level. A manufacturing outlook survey was released today and reported that Canadian manufacturers maintain a positive outlook on output and hiring in the third quarter. U.S. dollar offers are cited around the C$ 1.0655 level.

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