EURO
The euro lost marginal ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3640 level and was capped around the $1.3700 figure. The European Central Bank injected US$ 61.05 billion of liquidity today at its three-day tender one day after awarding US$ 95 billion. As many as 62 banks received funds today – up from 49 yesterday – and this suggests there may be more institutional exposure to the U.S. credit meltdown than was previously thought. The big question is whether current global credit conditions will force the European Central Bank to delay its anticipated +25bps monetary tightening next month to later in the year with November looking like a possible time frame if not in September. Data released in the eurozone today saw French industrial production lower by 0.5% m/m and this could result in weaker eurozone GDP in Q2. In U.S. news, July import prices surged 1.5% from June’s +0.9% increase and were up 2.8% y/y from June’s +2.0% y/y pace. Higher energy prices and stronger imported Chinese goods prices pushed import prices higher and these data will be a major concern to Federal Reserve policymakers who have noted recent moderations in inflation. These data exacerbate the already shaky credit conditions in the market and will make it more difficult for the Fed to justify a monetary easing should market conditions force the Fed into a corner. Excluding petroleum, import prices were up +0.2% m/m and +2.8% y/y. The Fed today announced three-day repurchase agreements totaling US$ 19 billion after the fed funds rate traded above 6%, well above the target rate of 5.25%. The Fed yesterday injected US$ 24 billion in liquidity. The Fed today announced it was injecting the liquidity to “maintain orderly” market conditions and because some banks might find it difficult to obtain credit because of market dislocations. Traders will pay close attention to next week’s CPI and PPI data. Euro bids are cited around the US$ 1.3625/ 1.3555 levels.
JPN/CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥117.20 level and was capped around the ¥118.35 level. Technically, today’s intraday low was right around the 76.4% retracement of the move from ¥115.15 to ¥124.15 and is nearing its weakest level since 29 March. Bank of Japan injected ¥1 trillion into money markets overnight after the overnight call rate rose from the target rate of 0.50% to 0.54% to 0.55%. The unexpected rise in the market overnight rate probably reflects the global liquidity glut and possible institutional exposure to the subprime mortgage credit meltdown in the U.S. Data released in Japan overnight saw the July wholesale goods price index rise 2.1% y/y, down from +2.3% y/y in June. Also, June industrial output was up a revised 1.3% m/m and July corporate failures were off 7.1% m/m. Moreover, the July consumer confidence index receded to 44.4 in July from 45.0 in June, the lowest reading since December 2004. The Nikkei 225 lost 2.37% to close at ¥16,764.09. Dollar bids are cited around the ¥115.15 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥159.95 level and was capped around the ¥161.85 level. The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥236.30 and CHF 98.05 levels, respectively. The Chinese yuan came off vis-à-vis the U.S. dollar as the greenback closed at CNY 7.5740 in the over-the-counter market, up from CNY 7.5646. Notably, the U.S. dollar’s discount vis-à-vis the yuan in the swaps market widened sharply today with the discount on one-year forwards as wide as 3,980 pips, up from 3,480 yesterday. This likely reflects global liquidity conditions and demand for funding on account of worsening global credit conditions. Data released in China today saw the trade surplus at US$ 24.36 billion in July, down from US$ 26.91 billion in June. Also, the July producer price index was up 2.4% y/y. People’s Bank of China advisor Fan Gang today indicated China’s FX reserves reached US$ 1.4 trillion, up from US$ 1.333 trillion at the end of June.
STERLING
The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 2.1050 level and was capped around the US$ 2.0240 level. Technically, today’s intraday low was just above the 50% retracement of the move from $1.9620 to $2.0655 level. Traders are trying to assess whether or not the current global credit problems will delay Bank of England’s probable +25bps monetary tightening in the next couple of months. Cable bids are cited around the US$ 2.0015 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the £0.6785 level and was supported around the £0.6750 level.
SWISS
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1930 level and was capped around the CHF 1.1985 level. Technically, today’s intraday high was right around the 50% retracement of the move from CHF 1.2165 to CHF 1.1815. Swiss National Bank today announced it will maintain its current monetary policy following the European Central Bank’s massive injections of liquidity. Many traders believe current global credit problems will delay Swiss National Bank’s expected +25bps monetary tightening next month. Dollar offers are cited around the CHF 1.2030 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6305 and CHF 2.4080 level, respectively.
The Australian dollar lost ground vis-à-vis the U.S. dollar today as the Aussie tested bids around the US$ 0.8400 figure and was capped around the $0.8505 level. Technically, today’s intraday high was right around the 50% retracement of the move from $0.8160 to $0.8870. Reserve Bank of Australia injected A$ 4.95 billion into the banking system today on account of the global liquidity glut. Australian dollar bids are cited around the US$ 0.8330 level. The New Zealand dollar extended recent losses vis-à-vis the U.S. dollar as the kiwi tested bids around the US$ 0.7400 figure and was capped around the US$ 0.7520 level. New Zealand dollar bids are cited around the US$ 0.7250 level.
CAD
The Canadian dollar appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 1.0525 level and was capped around the C$ 1.0615 level. Data released in Canada today saw the July net change in employment up 11,3000 while the unemployment rate fell to 6%, its lowest level since 1974. U.S. dollar offers are cited around the C$ 1.0655 level.