DAILY MARKET COMMENTARY
17 June 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 vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.5550 level and was supported around the $1.5460 level.  Technically, today’s intraday high and low were right around the 38.2% and 23.6% retracements of the move from $1.6020 to $1.5280, respectively.  Traders are scaling back their expectations regarding rate hikes by the Federal Open Market Committee.  Many dealers now believe the Fed’s dramatic increase in hawkishness over the past couple of weeks was designed to lift market interest rates so that the Fed won’t have to raise official interest rates anytime soon.  Richmond Fed President Lacker was quoted as saying “inflation is unacceptably high…despite several years of elevated inflation, the public's expectation of future inflation has not become completely adrift as it was in the 1970s.”  Many data were released in the U.S. today.  First, May producer prices soared at their fastest pace in six months, up 1.4% m/m and 7.2% y/y. Core inflation was up 0.2% m/m and 3.0% y/y.  Second, May housing starts were off 3.3% to an annualized 975,000 rate, the lowest since 1991.  Third, May industrial production was off 0.2% and capacity utilization fell 0.2% to 79.4%. Fourth, the Q1 current account goods/ deficit printed at US$ 174.9 billion and Q4 2007’s deficit was revised to US$ 167.2 billion. Finally, it was reported yesterday that the June homebuilders index fell to 18.  In eurozone news, the German ZEW June economic expectations index printed at -52.4 compared with -41.4 in April – the lowest level since December 1992.  Also, the EMU-15 trade balance posted a €2.3 billion surplus. European Central Bank member Bini Smaghi reported “a hike, that I would describe as significant even if of only 0.25 basis points, should be enough to bring inflation within the (central bank's) objective of 2 percent (a year) within the next 18 to 24 months.”  Euro bids are cited around the $1.5230 level.

¥/ CNY

The yen appreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥107.60 level and was capped around the ¥108.40 level.  The pair failed to sustain yesterday’s gains as traders pared back their expectations regarding interest rate increases from the Federal Reserve.  Bank of Japan is not expected to lift interest rates anytime soon.  Data released in Japan overnight saw May machine tool orders revised to +1.4% while the April tertiary index was up 1.8% m/m and 0.6% y/y.  Prime Minister Fukuda reported he does not have current plans to promote an economic stimulus package and will instead continue reform efforts.  The Nikkei 225 stock index lost 0.04% to close at ¥14,348.37.  Dollar bids are cited around the ¥103.00/ 101.35 levels.  The euro moved higher vis-à-vis the yen as the crosses tested offers around the ¥167.80 level and was supported around the ¥167.05 level.  The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥210.65 and ¥103.45 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8915 in the over-the-counter market, down from 6.9004 and the pair’s lowest close since the yuan revaluation of July 2005.  Data released in China overnight saw January – May urban fixed-asset investment up 25.6% y/y.

₤

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9470 level and was capped around the $1.9695 level.  Technically, today’s intraday high was right around the 50% retracement of the move from $2.0025 to $1.9360.  As expected, Bank of England Governor King was forced to write a letter today to Chancellor of the Exchequer Darling because the U.K. inflation rate is more than 1% above the Bank of England’s 2.0% target rate. King reported inflation “is likely to remain markedly above the target until well into 2009.”  May CPI inflation was up 3.3%, above expectations.  Traders are actually scaling back their expectations regarding a rate hike by BoE’s Monetary Policy Committee.  King also characterized the higher inflation as “temporary” and said there has been “unnecessary volatility in output and employment.”  Cable bids are cited around the US$ 1.9360/ 1.9100 levels.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7955 level and was supported around the ₤0.7870 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0375 level and was capped around the CHF 1.0460 level.  Technically, today’s intraday low was right around the 23.6% retracement of the move from CHF 0.9645 to CHF 1.0625.  Data released in Switzerland today saw Q1 industrial production climb 4.3% y/y and was off 9.3% q/q.  U.S. dollar bids are cited around the CHF 1.0250 level.  The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6125 and CHF 2.0310 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.5490                 1.5551, 1.5460
USD/ JPY         108.22                 108.38, 107.59
GBP/ USD        1.9496                 1.9696, 1.9469
USD/ CHF         1.0445                 1.0458, 1.0376
AUD/ USD         0.9405                 0.9437, 0.9389
USD/CAD          1.0191                 1.0246, 1.0180
NZD/USD          0.7542                0.7571, 0.7522
EUR/ JPY         167.62    167.81, 167.05
EUR/ GBP        0.7945                 0.7954, 0.7869
EUR/ CHF         1.6183                 1.6188, 1.6124
GBP/ JPY         210.99                 212.64, 210.63
CHF/ JPY          103.59    103.89, 103.44

Support                        Resistance                   Support                     Resistance

EUR/ USD                                                              USD/ JPY

L1.        1.5225                          1.5645                            101.95                        106.60 

L2.        1.5035                          1.5840                            100.60                        109.95
L3.        1.4805                          1.6020                             98.75             113.30

   GBP/ USD                                                          USD/ CHF

L1.        1.9520                          1.9760                          1.0135                          1.0565

L2.        1.9395                          1.9880                          0.9990                          1.0730

L3.        1.9100                          2.0000                          0.9875                          1.1040

 AUD/ USD                                                           USD/ CAD

L1.        0.9380                          0.9655                          0.9870                          1.0175

L2.        0.9215                          0.9735                          0.9715                          1.0370

L3.        0.9005                          1.0115                          0.9465                          1.0520

 NZD/ USD                                                           EUR/ JPY

L1.        0.7700                          0.8105                          160.60                          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.        0.7740                          0.8120                          1.5975                          1.6250

L2.        0.7555                          0.8310                          1.5855                          1.6470

L3.        0.7440                          0.8570                          1.5730                          1.6760

  GBP/ JPY                                                           CHF/ JPY

L1.        200.60                          208.50                            98.70                         103.30

L2.        197.55                          211.35                            97.00                         105.40

L3.        192.70                          217.15                            95.85                         107.70

SCHEDULE

Tuesday, 17 June 2008

all times GMT

(last release in parentheses)

N/A       U.S.                  U.S. and Chinese financial officials convene

0130     Australia           Reserve Bank of Australia board meeting minutes

0600     Japan                May machine tool orders (1.4% y/y)

0715     CH                    Q1 industrial production (6.8% q/q)

0715     CH                    Q1 industrial production (9.1% y/y)

0800     Italy                  April trade balance

0830     UK                    May consumer price index (3.0% y/y)

0830     UK                    May consumer price index, core (1.4% y/y)

0830     UK                    May retail price index (0.9% m/m)

0830     UK                    May retail price index (4.2% y/y)

0830     UK                    May RPIX (4.0% y/y)

0900     Germany           June ZEW survey, current situation (38.6)

0900     Germany           June ZEW survey, economic sentiment (-41.4)

0900     Eurozone          June ZEW survey, economic sentiment (-43.6)

0900     Eurozone          April trade balance (-€2.3 billion)

1230     US                    Q1 current account balance (-US$ 172.9 billion)

1230     US                    May producer price index (0.2% m/m)

1230     US                    May producer price index (6.5% y/y)

1230     US                    May producer price index, ex-food and energy (0.4% m/m)

1230     US                    May producer price index, ex-food and energy (3.0% y/y)

1230     US                    May housing starts (1.032 million)

1230     US                    May building permits (978,000)

1230     US                    May industrial production (-0.7%)

1230     Canada             April international securities transactions (C$ 5.296 billion)

1315     US                    May capacity utilization (79.7%)

2350     Japan                Bank of Japan Policy Board meeting minutes

Wednesday, 18 June 2008

all times GMT

(last release in parentheses)

0030     Australia           April Westpac leading index (0.2% m/m)

0130     Australia           May imports

0500     Japan                April leading economic index

0500     Japan                April coincident index

0530     Japan                May Tokyo-area department store sales (-0.7% y/y)

0530     Japan                May nationwide department store sales (-3.4% y/y)

0830     UK                    Bank of England Monetary Policy Committee meeting minutes

0900     CH                    June ZEW survey, expectations (-60.4)

0900     Eurozone          April construction output (-2.2% m/m)

0900     Eurozone          April construction output (-1.4% y/y)

1000     UK                    June CBI monthly industrial trends

1100     US                    MBA mortgage applications (10.9%)

1230     Canada             May leading indicators (0.1% m/m)

1545     US                    San Francisco Fed President Yellen speaks

2350     Japan                Foreign purchases of Japanese stocks and bonds

2350     Japan                Japanese purchases of foreign stocks and bonds

2350     Japan                April all-industry activity index (0.5% m/m)

Thursday, 19 June 2008

all times GMT

(last release in parentheses)

N/A       Australia           Q1 quarterly wage agreements

0100     Australia           Q2 Westpac industrial trends

0400     US                    Treasury Undersecretary McCormick speaks

0615     CH                    May trade balance (CHF 1.57 billion)

0730     CH                    Swiss National Bank interest rate decision

0800     Italy                  Q1 unemployment rate

0830     Italy                  April current account

0830     UK                    May retail sales (-0.2% m/m)

0830     UK                    May retail sales (4.2% y/y)

0830     UK                    May public sector net cash requirement (-₤1.0 billion)

0830     UK                    May public sector net borrowing (-₤500 million)

0830     UK                    May M4 money supply (0.6% m/m)

0830     UK                    May M4 money supply (11.1% y/y)

0830     UK                    May M4 sterling lending (₤27.9 billion)

1100     Canada             May consumer price index (0.8% m/m)

1100     Canada             May consumer price index (1.7% y/y)

1100     Canada             May Bank of Canada consumer price index, core (0.3% m/m)

1100     Canada             May Bank of Canada consumer price index, core (1.5% y/y)

1230     US                    Weekly initial jobless claims (384,000)

1230     US                    Continuing jobless claims (3.139 million)

1230     Canada             April wholesale sales (0.6% m/m)

1400     US                    June Philadelphia Fed survey (-15.6)

1400     US                    May leading indicators (0.1%)

1830     US                    Federal Reserve Vice Chairman Kohn testifies

Friday, 20 June 2008

all times GMT

(last release in parentheses)

N/A       CH                    May M3 money supply

0600     Germany           May producer prices (1.1% m/m)

0600     Germany           May producer prices (5.2% y/y)

0645     France              Q1 wages (1.1% q/q)

0700     Japan                May convenience store sales (-0.2% y/y)

0715     CH                    May producer and import prices (0.7% m/m)

0715     CH                    May producer and import prices (3.6% y/y)

0800     Italy                  April industrial orders (-0.8% m/m)

0800     Italy                  April industrial orders (-3.7% y/y)

0800     Italy                  April industrial sales (-1.6% m/m)

0800     Italy                  April industrial sales (-4.3% y/y)

0800     Italy                  May trade balance

1230     Canada             April retail sales (0.1% m/m)

1230     Canada             April retail sales, ex-autos (0.0% m/m)

1430     Canada             May money supply (7.3% y/y)

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