Forex Market Commentary and Analysis May 2008

EURO

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5520 level and was capped around the $1.5665 level.  The common currency has now been given for three consecutive days and stops were reached below the $1.5560 level, representing the 38.2% retracement of the move from $1.6020 to $1.5280.  Data released in the U.S. today added to the growing consensus that the U.S. economy may have averted the technical definition of a recession in Q1 as Q1 GDP was upwardly revised to an annualized +0.9% rate from the previous estimate of +0.6%.  The Q1 GDP deflator printed at 2.6% and the Q1 core PCE price index ticked lower to 2.1% from 2.2%, still above the Federal Reserve’s perceived upper comfort zone limit of 2.0%.  Also, weekly jobless claims were up 4,000 to 372,000 while continuing jobless claims printed at 3.10 million.  

PN/CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥105.35 level and was supported around the ¥104.60 level.  The pair reached its highest level since 14 May as traders refocused their attention on inflationary pressures in the U.S., growing confident that the U.S. will avert a technical recession. As expected, the Japanese government formally nominated Keio University economic professor Kazuhito Ikeo to become a member of Bank of Japan’s Policy Board. There are currently two vacancies on the Policy Board, including a deputy governorship for which Ikeo may have been nominated.  The issue remains politically contentious, much as the March appointment of now-Governor Shirakawa. Policy Board member Kamezaki today said “As for future monetary policy, we must collect and analyze as much information as possible, including (data from) overseas economies such as in the U.S. and Europe, the global financial market, and moves in energy and (raw) material prices.

April retail sales rise 0.1% y/y to ¥11.19 trillion.  The Nikkei 225 stock index climbed 3.03% to close at ¥14,124.47. Dollar bids are cited around the ¥103.00/ 101.35 levels. 

STERLING

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9675 level and was capped around the $1.9815 level.  The pair retraced some of its intraday losses during the North American session.  Data released in the U.K. today saw May CBU retail sales volumes print at -14, up from -26 in April while the prices sub-index surged to +56, reaching its highest level since May 1992.  Bank of England Monetary Policy Committee member Blanchflower reported “Our forecast is that inflation will come down in the medium term, but our concern is that we wouldn't want economic activity to drop dramatically. If there's a sense we are moving to a recession, we will have to make sure we don't.”  It was also reported that Nationwide May house prices were off a record 2.5%.  Cable bids are cited around the US$ 1.9360/ 1.9100 levels.  The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7850 level and was capped around the ₤0.7915 level.

SWISS

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0365 level and was capped around the CHF 1.0485 level.  Data released in Switzerland today saw Q1 employment levels rise to 3.9 million from 3.88 million in Q4.  U.S. dollar offers are cited around the CHF 1.0760 level.  The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6295 and CHF 2.0710 levels, respectively.