DAILY MARKET COMMENTARY
20 May 2008

Tuesday 

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GCI Foreign Exchange Research:        www.gcitrading.com/fxnews/
FX Research Desk:                                fxnews@gcitrading.com
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Fundamental Outlook at 1400 GMT (EDT + 0400)

€

The euro appreciated sharply vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5680 level and was supported around the $1.5505 level.  The common currency reached its highest level since 28 April as crude oil futures traded above the US$ 129 figure for the first time ever.  Data released in the U.S. today saw the April producer price index rise 0.2% m/m while core inflation was up 0.4% m/m and 3.0% y/y – the largest change since December 1991.  Traders will now focus on consumer price inflation data to determine if inflation is filtering through the supply chain from the wholesale level.  Federal Reserve Governor Kohn today said “the most likely scenario over the next year or so is one in which economic activity firms during the second half of this year and then gathers some strength in 2009.”  Regarding inflation, Kohn added he expects “core inflation to ease off slowly as commodity prices level out and as economic slack creates competitive conditions that inhibit increases in labor costs and prices.”  Other data released in the U.S. today saw the Chicago Fed April national activity index decline to -1.17 from -0.98 in March.  In eurozone news, German ZEW head Franz speculated the European Central Bank could raise interest rates “in the near future” and this led to a bid in the euro.  The German May ZEW economic expectations index fell to -41.4 from -40.7 in April, below forecast.  Also, the Belgian May consumer confidence index fell to -9 from -7 in April.  Euro bids are cited around the US$ 1.5230 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥103.45 level and was capped around the ¥104.45 level. As expected, Bank of Japan’s Policy Board kept the overnight call rate unchanged at 0.50% and kept its assessment of the domestic economy unchanged. The central bank reported “economic growth is slowing due to the effects of high energy and material prices” and added the economy will “grow at a slower pace for the time being and follow a moderate growth path thereafter.”  The BoJ also highlighted declining corporate profits and “cautious” business sentiment.  BoJ Governor Shirakawa said “"Recent data show that exports (from Japan) have expanded across the globe, but they also confirmed the flat trend of industrial output, a moderation of the growth of corporate profits and a slowdown in the expansion of capital investment. Thus, an economic slowdown is becoming more evident. We now need to assess if a weakening of the growth momentum of income, stemming from the deterioration of the terms and conditions of trade, will pose downside risks to domestic private demand. In particular, I'm watching closely how a deterioration of the terms and conditions of trade will affect corporate capital investments.”  Data released in Japan overnight saw April convenience store sales fall 0.2% y/y while the March leading index was downwardly revised to 18.2 from an initial estimate of 20.0 and the coincident index was downwardly revised to 30.0. The Nikkei 225 stock index lost 0.77% to close at ¥14,160.09.  Dollar bids are cited around the ¥103.00/ 101.35 levels.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥163.00 figure and was supported around the ¥161.45 level.  The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥204.85 and ¥100.05 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.9735 in the over-the-counter market, down from CNY 6.9753 and the pair’s lowest close since the yuan revaluation of July 2005.

₤

The British pound appreciated sharply vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9705 level and was supported around the $1.9475 level.  Technically, today’s intraday high was just above the 50% retracement of the move from $2.0025 to $1.9360.  U.K. interbank lending rates remain elevated with the overnight rate trading at 5.10%, above the central bank’s 5.00% benchmark rate.  Most traders believe last week’s more hawkish-than-expected quarterly inflation report from the central bank will render it difficult for the central bank to ease monetary policy next month. Cable bids are cited around the US$ 1.9360/ 1.9100 levels.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7940 level and was capped around the ₤0.7980 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0360 level and was capped around the CHF 1.0535 level.  The pair reached its weakest level since 1 May.  Swiss National Bank Directorate member Hildebrand indicated Switzerland may establish tighter regulatory rules for its banks than other countries.  Data released in Switzerland today saw March producer and import prices up 0.7% m/m and 3.6% y/y.   U.S. dollar offers are cited around the CHF 1.0760 level.  The euro and British pound moved lower vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6235 and CHF 2.0410 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.5646                 1.5673, 1.5503
USD/ JPY         103.62                 104.64, 103.52
GBP/ USD        1.9682                 1.9682, 1.9477
USD/ CHF         1.0396                 1.0539, 1.0379
AUD/ USD         0.9596                 0.9615, 0.9516
USD/CAD          0.9921                 0.9939, 0.9874
NZD/USD          0.7755                0.7768, 0.7712
EUR/ JPY         162.21    163.02, 161.44
EUR/ GBP        0.7946                 0.7980, 0.7945
EUR/ CHF         1.6270                 1.6346, 1.6260
GBP/ JPY         204.10                 204.83, 202.69
CHF/ JPY            99.68    100.04,   98.89

Support                        Resistance                   Support                     Resistance

EUR/ USD                                                              USD/ JPY

L1.        1.5545                          1.6020                            94.20                          105.55 

L2.        1.5320                          1.6125                            88.75                          106.95
L3.        1.5260                          1.6650                            85.25                          108.60

   GBP/ USD                                                          USD/ CHF

L1.        1.9605                          2.0395                          1.0105                          1.0375

L2.        1.9395                          2.0525                          0.9990                          1.0565

L3.        1.9100                          2.0885                          0.9875                          1.1040

 AUD/ USD                                                           USD/ CAD

L1.        0.9145                          0.9550                          0.9960                          1.0370

L2.        0.9005                          0.9735                          0.9715                          1.0520

L3.        0.8750                          1.0115                          0.9465                          1.0745

 NZD/ USD                                                           EUR/ JPY

L1.        0.7800                          0.8105                          161.85                          166.65

L2.        0.7595                          0.8420                          158.35                          167.75

L3.        0.7275                          0.8665                          154.80                          168.95

  EUR/ GBP                                                           EUR/ CHF

L1.        0.7825                          0.8120                          1.6450                          1.6760

L2.        0.7625                          0.8310                          1.6255                          1.6955

L3.        0.7440                          0.8570                          1.6100                          1.7180

  GBP/ JPY                                                           CHF/ JPY

L1.        197.20                          209.90                            97.00                         103.30

L2.        186.75                          215.50                            95.85                         105.40

L3.        172.35                          226.75                            92.15                         107.70

SCHEDULE

Tuesday, 20 May 2008

all times GMT

(last release in parentheses)

0130     Australia           Reserve Bank of Australia May board meeting minutes

0500     Japan                March coincident index (33.3%)

0500     Japan                March leading economic index (20.0%)

0600     Japan                Bank of Japan monthly report

0600     Germany           April producer prices (0.7% m/m)

0600     Germany           April producer prices (4.2% y/y)

0700     Japan                April convenience store sales (-0.6% y/y)

0715     CH                    April producer and import prices (0.6% m/m)

0715     CH                    April producer and import prices (3.9% y/y)

0800     Italy                  March industrial orders (2.0% m/m)

0800     Italy                  March industrial orders (14.3% y/y)

0800     Italy                  March industrial sales (0.8% m/m)

0800     Italy                  March industrial sales (9.0% y/y)

0900     Germany           May ZEW survey, current situation (33.2)

0900     Germany           May ZEW survey, economic sentiment (-40.7)

0900     Eurozone          May ZEW survey, economic sentiment (-44.8)

1230     US                    April producer price index (1.1% m/m)

1230     US                    April producer price index (6.9% y/y)

1230     US                    April producer price index, ex-food and energy (0.2% m/m)

1230     US                    April producer price index, ex-food and energy (2.7% y/y)

1230     Canada             March international securities transactions

1230     Canada             March wholesale sales (-1.8% m/m)

1300     US                    Federal Reserve Vice Chairman Kohn speaks

1700     Eurozone          European Union’s Alumnia speaks

Wednesday, 21 May 2008

all times GMT

(last release in parentheses)

0030     Australia           May Westpac consumer confidence (-1.3%)

0300     NZ                    April credit card spending (3.5% y/y)

0800     Germany           May Ifo, business climate (102.4)

0800     Germany           May Ifo, current assessment (108.4)

0800     Germany           May Ifo, expectations (96.8)

0830     UK                    Bank of England Monetary Policy Committee meeting minutes

0830     UK                    April public sector net cash requirements (₤12.7 billion)

0830     UK                    April public sector net borrowing (₤10.2 billion)

0830     UK                    April M4 money supply (0.8% m/m)

0830     UK                    April M4 money supply (11.9% y/y)

0830     UK                    April M4 sterling lending (₤17.4 billion)

0900     CH                    May ZEW survey, expectations (-71.4)

1100     US                    MBA mortgage applications (2.9%)

1100     Canada             April consumer price index (0.4% m/m)

1100     Canada             April consumer price index (1.4% y/y)

1100     Canada             April consumer price index, core (0.2% m/m)

1100     Canada             April consumer price index, core (1.3% y/y)

1230     Canada             April leading indicators (0.0% m/m)

1800     US                    Federal Open Market Committee meeting minutes

2350     Japan                April merchandise trade balance (¥1.11 trillion)

2350     Japan                Foreign purchases of Japanese equities and bonds

2350     Japan                March all-industry activity index (-1.4% m/m)

Thursday, 22 May 2008

all times GMT

(last release in parentheses)

N/A       Japan                May monthly economic report

0100     Australia           May consumer inflation expectations (4.3%)

0200     NZ                    Finance minister Cullen delivers 2008 budget

0500     Japan                April supermarket sales (1.4% y/y)

0700     Germany           European Central Bank member Weber speaks

0730     Italy                  May consumer confidence (99.8)

0800     Italy                  March retail sales (0.3% m/m)

0800     Italy                  March retail sales (2.7 y/y)

0830     UK                    April retail sales (-0.4% m/m)

0830     UK                    April retail sales (4.6% y/y)

0830     UK                    Q1 total business investment (1.8% q/q)

0830     UK                    Q1 total business investment (1.7% y/y)

0900     Eurozone          March industrial new orders (0.6% m/m)

0900     Eurozone          March industrial new orders (9.9% y/y)

1000     UK                    May CBI monthly industrial trends

1230     US                    Weekly initial jobless claims (371,000)

1230     US                    Continuing jobless claims (3.060 million)

1230     Canada             March retail sales (-0.7% m/m)

1230     Canada             March retail sales, ex-autos (-0.3% m/m)

1315     US                    Federal Reserve Governor Kroszner speaks

1400     US                    March house price index (0.6% m/m)

1400     US                    Q1 house price index (0.1% q/q)

2350     Japan                Bank of Japan Policy Board meeting minutes (8-9 April)

Friday, 23 May 2008

all times GMT

(last release in parentheses)

0615     CH                    April trade balance (CHF 1.25 billion)

0645     France              April consumer spending (-1.7% m/m)

0645     France              April consumer spending (1.2% y/y)

0700     France              May PMI, manufacturing (51.1)

0700     France              May PMI, services (52.8)

0730     Germany           May PMI, manufacturing (53.6)

0730     Germany           May PMI, services (54.9)

0800     Italy                  April trade balance

0800     Italy                  Q1 2007 and Q1 2008 GDP

0800     Eurozone          May PMI, manufacturing (50.7)

0800     Eurozone          May PMI, services (52.0)

0830     UK                    Q1 GDP (0.4% q/q)

0830     UK                    Q1 GDP (2.5% y/y)

1400     US                    April existing home sales (4.93 million)

1400     US                    April existing home sales (-2.0% m/m)

1430     Canada             April money supply          

DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.