DAILY MARKET COMMENTARY
18 June 2008

Wednesday

_____________________________________________________________________
GCI Foreign Exchange Research:        www.gcitrading.com/fxnews/
FX Research Desk:                                fxnews@gcitrading.com
_____________________________________________________________________

Fundamental Outlook at 1400 GMT (EDT + 0400)

€

The euro weakened vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5465 level and was capped around the $1.5535 level.  Technically, today’s intraday low was right around the 23.6% retracement of the move from $1.6020 to $1.5280.  European Central Bank member Stark spoke today and reported “The current annual inflation rate in the euro zone of 3.7 percent in May is unacceptably high. This is cause for alarm and for heightened alertness. Given the price dynamics and the continuing, if not increased, risks to price stability, along with clear declines in real interest rates, I consider it advisable to review the appropriateness of the current level of leading interest rates.” Most traders believe the ECB will lift its main refinancing target rate by 25bps to 4.25% next month.  Stark added “increasing tendencies in price and wage-setting behaviour…point to second-round effects.” The German government reported it expects economic growth in Q2 2008 to be “dampened” compared with Q1.  In U.S. news, the Financial Times reported expectations for Fed rate hikes are inconsistent with Fed policymakers’ current views. Also, the Wall Street Journal reported the Fed is likely to keep rates steady until Q3 or Q4 “unless the inflation outlook deteriorates considerably.”  Euro bids are cited around the $1.5230 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.40 level and was supported around the ¥107.85 level.  The pair retraced some of yesterday’s losses as traders continued to speculate Bank of Japan’s Policy Board will not lift the overnight call rate target from 0.50% anytime soon.  Minutes from Bank of Japan’s Policy Board meetings on 19-20 May revealed concerns over “both supply and demand shocks” to the Japanese economy.  Data released in Japan overnight saw May department store sales off 2.7%, the third consecutive monthly decline.  Also, the April index of leading economic indicators printed at 92.8 while the coincident index remained steady at 101.7.  The Nikkei 225 stock index gained 0.73% to close at ¥14,452.82.  Dollar bids are cited around the ¥103.00/ 101.35 levels.  The euro came off vis-à-vis the yen as the single currency tested bids around the ¥167.00 figure and was capped around the ¥168.05 level.  The British pound and Swiss franc weakened vis-à-vis the yen as the crosses tested bids around the ¥210.40 and ¥103.40 levels, respectively.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8821 in the over-the-counter market, down from CNY 6.8915 and the pair’s lowest close since the yuan revaluation of July 2005.  People’s Bank of China advisor Wei Benhua reported “China needs to appropriately increase the flexibility of the exchange rate and gradually let the exchange rate be basically decided by market forces.”  PBoC Governor Zhou noted “A weak dollar will inevitably result in a rise in primary products including commodities, including oil. Therefore, the RMB will also face a rising pressure, which will drive up inflation.”

₤

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9575 level and was supported around the $1.9475 level.  Cable clawed back its earlier intraday losses as traders continued to weigh higher inflation pressures and expectations against a slowing U.K. economy.  Minutes from Bank of England’s June Monetary Policy Committee meeting were released today in which rate-setters voted 8-to-1 to keep the headline repo rate unchanged at 5.0%.  MPC archdove Blanchflower voted for a 25bps reduction.   Policymakers acknowledged the economy may require “a somewhat greater degree of slack…to ensure inflation returned to the target.”  CBI released its June industrial trends survey and it evidenced a balance of +28% of manufacturers indicating they intend to raise prices over the next three months, down from +30% in May, a thirteen-month high. Also, the orders sub-index climbed to +1 from -10 in May. Chancellor of the Exchequer Darling, who may announce a sweeping overhaul of financial industry regulation this week, cautioned against inflation from becoming “embedded” in the economy through wage deals.  The market continues to scale back its expectations regarding two or three rate hikes by the end of the year.  Cable bids are cited around the US$ 1.9360/ 1.9100 levels.  The euro weakened vis-à-vis the British pound as the single currency tested offers around the ₤0.7950 level and was supported around the ₤0.7915 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0390 level and was capped around the CHF 1.0465 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 the June ZEW indicator for economic expectations decline to -63.8 from -60.4 in May while the current economic situation sub-index slipped to 53.2 from 64.6.  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 2.0335 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.5476                 1.5536, 1.5463
USD/ JPY         108.14                 108.42, 107.83
GBP/ USD        1.9523                 1.9576, 1.9477
USD/ CHF         1.0434                 1.0466, 1.0404
AUD/ USD         0.9414                 0.9451, 0.9402
USD/CAD          1.0197                 1.0210, 1.0167
NZD/USD          0.7543                0.7568, 0.7535
EUR/ JPY         167.38    168.03, 167.01
EUR/ GBP        0.7925                 0.7951, 0.7922
EUR/ CHF         1.6154                 1.6188, 1.6145
GBP/ JPY         211.20                 211.48, 210.39
CHF/ JPY          103.61    103.88, 103.41

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

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)

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 used as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.