DAILY MARKET COMMENTARY
2 July 2008

Wednesday

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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$ 1.5885 level and was supported around the $1.5775 level.  The common currency reached its highest level since 24 April as traders positioned themselves ahead of tomorrow’s interest rate decision and press conference from the European Central Bank.  Most traders expect the ECB will lift its main refinancing rate target by 25bps to 4.25% and the real question involves what exactly ECB President Trichet will say after the decision is announced. ECB policymakers have recently intimated tomorrow’s likely hike will probably be a one-off tightening but recent inflation data in the eurozone has only gotten hotter and changes are increasing that the ECB will have to move again before the end of the year.  Data released in the eurozone today saw EMU-15 producer price inflation at an eighteen-year high in May, up 1.2% m/m and 7.1% y/y. Other data saw May new machinery, plant orders off 12% y/y.  In U.S. news, the dollar also suffered after ADP reported June private payrolls fell 79,000, much worse than expected.  This print has resulted in some revisions to tomorrow’s June non-farm payroll forecast that had many economists forecasting a loss of about 50,000 jobs last month.   Other data saw May factory orders climb 0.6%, down from +1.3% in April, with the ex-transportation component slowing to +0.4%.  Atlanta Fed President Lockhart reported he expects Q2 GDP growth to be “substantially” above Q1’s pace of 1.0%.  Euro bids are cited around the $1.5645/ $1.5230 levels.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥105.75 level and was capped around the ¥106.75 level.  Nikkei reported Bank of Japan is expected to reduce its economic assessment for the current fiscal year to March 2009 on account of a decelerating economy and escalating prices. BoJ’s Policy Board will convene on 14-15 July and will also release its semi-annual outlook on the economy and prices and is likely to highlight “downside” risks to current projections.  The BoJ is also expected to acknowledge prices may continue higher.  Data released in Japan overnight saw the June monetary base up 0.4% y/y.  The Nikkei 225 stock index lost 1.31% to close at ¥13,286.37.  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 ¥168.60 level and was supported around the ¥167.30 level.  The British pound came off vis-à-vis the yen as sterling tested bids around the ¥210.80 level and was capped around the ¥212.05 level.  The Swiss franc moved higher vis-à-vis the yen as the pair tested offers around the ¥104.55 level.  The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8530 in the over-the-counter market, down from CNY 6.8567 and the pair’s lowest close since the yuan revaluation of July 2005.  Data released in China overnight saw the May consumer confidence index rise to 94.3 from 94.0 in April.

₤

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9845 level and was capped around the $1.9975 level.  Technically, the pair tested bids below the $1.9865 level, representing the 23.6% retracement of the move from $1.9405 to $2.0005.  Data released in the U.K. today saw June construction PMI fall to 38.8 from 43.9 in May, evidence the sector has declined at its fastest pace since at least 1997.  Other data saw Bank of England’s measure of house equity withdrawal fall to its lowest level since Q1 2001 at ₤5.0 billion.    Cable bids are cited around the US$ 1.9360/ 1.9100 levels.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7970 level and was supported around the ₤0.7915 level.

CHF

The Swiss franc appreciated marginally vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0135 level and was capped around the CHF 1.0225 level.  Technically, today’s intraday low was right around the 50% retracement of the move from CHF 0.9645 to CHF 1.0625.  U.S. dollar bids are cited around the CHF 1.0020 level.  The euro moved higher vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.6150 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 2.0205 level.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.5848                 1.5873, 1.5776
USD/ JPY         106.15                 106.75, 105.76
GBP/ USD        1.9938                 1.9973, 1.9844
USD/ CHF         1.0175                 1.0231, 1.0151
AUD/ USD         0.9631                 0.9643, 0.9532
USD/CAD          1.0149                 1.0227, 1.0141
NZD/USD          0.7605                0.7611, 0.7562
EUR/ JPY         168.24    168.62, 167.30
EUR/ GBP        0.7949                 0.7968, 0.7913
EUR/ CHF         1.6131                 1.6149, 1.6074
GBP/ JPY         211.63                 212.06, 210.79
CHF/ JPY          104.30    104.56, 103.87

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, 2 July 2008

all times GMT

(last release in parentheses)

0100     Australia           June DEWR skilled vacancies (-0.1% m/m)

0130     Australia           May retail sales (-0.2%)

0130     Australia           May building approvals (7.8% m/m)

0130     Australia           May building approvals (5.2% y/y)

0830     UK                    June PMI, construction (43.9)

0900     Eurozone          May PPI (0.8% m/m)

0900     Eurozone          May PPI (6.1% y/y)

1100     US                    MBA mortgage applications (-9.3%)

1130     US                    June Challenger job cuts (45.6% y/y)

1215     US                    June ADP employment change (40,000)

1400     US                    May factory orders (1.1%)

1500     UK                    U.S. Treasury Secretary Paulson speaks

1600     Israel                Federal Reserve Governor Mishkin speaks

2330     Australia           June AIG performance of service index (49.7)

2350     Japan                Foreign purchases of Japanese equities and bonds

2350     Japan                Japanese purchases of foreign equities and bonds

Thursday, 3 July 2008

all times GMT

(last release in parentheses)

N/A       UK                    June HBOS house prices (-2.4% m/m)

0130     Australia           May trade balance (-A$ 957 million)

0300     NZ                    June ANZ commodity prices (1.0%)

0545     CH                    June consumer price index (0.8% m/m)

0545     CH                    June consumer price index (2.9% y/y)

0750     France              June PMI, services (49.2)

0755     Germany           June PMI, services (53.3)

0800     Eurozone          June PMI, services (49.5)

0830     UK                    Q2 Bank of England credit conditions survey

0830     UK                    June PMI, services (49.8)

0900     Eurozone          May retail sales (-0.6% m/m)

0900     Eurozone          May retail sales (-2.9% y/y)

1145     Eurozone          European Central Bank interest rate decision

1230     US                    June unemployment rate (5.5%)

1230     US                    Weekly initial jobless claims (384,000)

1230     US                    Continuing jobless claims (3.139 million)

1230     US                    June average hourly earnings (0.3% m/m)

1230     US                    June average hourly earnings (3.5% y/y)

1230     US                    June non-farm payrolls, change (-49,000)

1400     US                    June ISM non-manufacturing (51.7)

2200     NZ                    May tax receipts

Friday, 4 July 2008

all times GMT

(last release in parentheses)

N/A       US                    U.S. markets closed

0500     Japan                May leading index (92.8%)

0500     Japan                May coincident index (101.7%)

1000     Germany           May factory orders (-1.8% m/m)

1000     Germany           May factory orders (15.0% y/y)

1400     Canada             June Ivey PMI (62.5)

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.

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