DAILY MARKET COMMENTARY
18 July 2008

Friday

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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 depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5805 level and was capped around the $1.5885 level.  The common currency came off after it was reported that U.S. banking giant Citigroup registered lost less money in the second business quarter than estimated.  Citigroup took a charge of US$ 7.2 billion, below the $9.0 billion write-down that was expected.  Traders are paying close attention to earnings reports from other U.S. financial institutions, especially during this period of heightened credit market dislocation.  In eurozone news, the EMU-15 May trade balance printed at -€4.6 billion, down from April’s surplus of €2.5 billion.  Also, German producer price inflation registered its strongest rise since 1982, up 0.9% m/m and 6.7% y/y. European Central Bank member Draghi reported “Whereas in past months spill-over effects had been modest and underlying inflation had remained subdued, lately the risks have increased.”  ECB President Trichet reported EMU-15 GDP growth is likely to be weak in Q2 and Q3 before recovering and added second-round inflation effects need to be prevented.  Euro bids are cited around the $1.5645/ $1.5230 levels.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥106.90 level and was supported around the ¥105.95 level.  Liquidity will be reduced in Japan on Monday on account of a national holiday.  Bank of Japan Governor Shirakawa reported the economy is likely to avoid a “deep adjustment” and minutes from BoJ Policy Board’s June meeting evidenced concern with rising global inflation.  Data released in Japan overnight saw June department store sales off 7.6% y/y, the fourth consecutive monthly decline.  Shirakawa said the “balance is 50-50” towards boosting economic growth and combating inflation.    The Nikkei 225 stock index lost 0.65% to close at ¥12,803.70.  Dollar bids are cited around the ¥103.65 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥169.30 level and was supported around the ¥168.20 level.  The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥213.30 and ¥104.55 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8169 in the over-the-counter market, down from CNY 6.8213. Data released in China today saw the June property climate index fall to 103.08.   

₤

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9905 level and was capped around the $2.0035 level.  Technically, today’s intraday high was right around the 38.2% retracement of the move from $2.1160 to $1.9335.  Bank of England Monetary Policy Committee member Sentence reported “I have been particularly struck by the speed with which inflation has moved to somewhere that is significantly above target.  There are clear risks to inflation expectations in this environment.” Sterling also came off on media reports the U.K. Treasury is considering altering its fiscal rules to allow more borrowing to counteract the anticipated economic slowdown. Data released in the U.K. today saw June net borrowing rose to ₤9.2 billion, down from ₤6.3 billion on account of higher government spending.  It was also reported that CML gross mortgage lending printed at its weakest level since 2006.  BoE MPC member Gieve noted CPI is likely “to be well over 4 per cent for much of the rest of the year.”  Cable bids are cited around the US$ 1.9870/ 1.9360 levels.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7960 level and was supported around the ₤0.7915 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0250 level and was supported around the CHF 1.0175 level.  Technically, today’s intraday high was right around the 38.2% retracement of the move from CHF 0.9645 to CHF 1.0625 level.  Swiss National Bank encouraged Swiss banks to increase their capitalizations.  U.S. dollar offers are cited around the CHF 1.0395 level.  The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6210 and CHF 2.0445 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.5846                 1.5887, 1.5806
USD/ JPY         106.58                 106.92, 105.97
GBP/ USD        1.9961                 2.0037, 1.9905
USD/ CHF         1.0211                 1.0251, 1.0173
AUD/ USD         0.9723                 0.9736, 0.9700
USD/CAD          1.0030    1.0077, 1.0020
NZD/USD          0.7632                0.7659, 0.7618
EUR/ JPY         168.89    169.16, 168.22
EUR/ GBP        0.7937                 0.7959, 0.7914
EUR/ CHF         1.6179                 1.6209, 1.6160
GBP/ JPY         212.73                 213.27, 211.57
CHF/ JPY          104.37    104.42, 103.99

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

Friday, 18 July 2008

all times GMT

(last release in parentheses)

0130     Australia           Q2 import price index (2.7% q/q)

0130     Australia           Q2 export price index (3.5% q/q)

0600     Germany           June producer prices

0800     Italy                  May industrial orders

0800     Italy                  May industrial sales

0830     UK                    June public sector net cash requirement

0830     UK                    June public sector net borrowing

0830     UK                    June M4 money supply

0830     UK                    June M4 sterling lending

0900     Eurozone          May trade balance (€2.2 billion)

0900     Eurozone          May construction output

1230     Canada             June leading indicators

1230     Canada             May wholesale sales

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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