DAILY MARKET COMMENTARY
15 August 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$ 1.4695 level and was capped around the $1.4825 level.  The common currency reached its lowest level since 20 February as long commodities trades continued to unwind, favouring the U.S. dollar.  In eurozone news, German research institute Ifo reported it will lower its 2008 German economic growth forecast to about 2% from 2.4%.  German economic minister Glos said the government’s current forecast for 1.2% growth in 2009 will be reviewed in the middle of October.  European Central Bank member Stark said politicians should not “overplay” the recent EMU-15 economic contraction and noted slower growth may not reduce inflation much.  ECB’s Weber said Germany’s and the eurozone’s economies remain in “robust” shape and does not foresee a recession.  In U.S. news, Minneapolis Fed President Stern said the current economic conditions resembles those of the early 1990s and said they imply “a continuation of only modest expansion in the economy, the likelihood of further increases in unemployment for a time, and a diminution of inflation, absent a resurgence in energy and other commodity prices.” Data released in the U.S. today saw the New York Fed’s August manufacturing survey climb to 2.77.  Other U.S. data saw July industrial production was up +0.2% while capacity utilization rose to 79.9%.  June net TIC purchases of U.S. securities grew to US$ 51.1 billion, up from US$ 12.3 billion in May. Additionally, the mid-August University of Michigan consumer sentiment indicator improved to 61.7 from 61.2 at the end of July.  Euro bids are cited around the US$ 1.4315 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥110.65 level and was supported around the ¥109.60 level.  The pair established a new multi-month high dating to 2 January.  Japan’s financial services ministry reported Japanese banks’ losses related to bad loans spiked nearly two-thirds in the April-June quarter.  This is one of the first reports that Japanese banks may be encountering credit-related problems.  Most traders expect Bank of Japan to reduce its assessment of the economy in the coming days and to keep the overnight call rate unchanged at 0.50% for the foreseeable future.  The Nikkei 225 stock index climbed 0.48% to close at ¥13,019.41.  Dollar bids are cited around the ¥106.40 level.  The euro gained ground vis-à-vis the yen as the single currency tested offers around the ¥163.10 level and was supported around the ¥162.00 figure.  The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥206.10 and ¥100.75 levels, respectively. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed around the CNY 6.8700 figure, up from CNY 6.8600.  People’s Bank of China’s Q2 monetary policy report indicated the central bank will “guide reasonable credit growth” and maintain stable monetary policies. Data released in China overnight saw January – July urban fixed-asset investment up 27.3%.

₤

The British pound extended recent losses vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.8510 level and was capped around the $1.8700 figure.  Today’s intraday low coincided with the pair’s low during the pullback in October 2006.  Data released in the U.K. today saw the number of English and Welsh corporate failures and personal bankruptcies move higher in Q2.  Sterling continued to feel the pain from this week’s weaker-than-expected Bank of England quarterly inflation report and a growing sense the U.K. economy is headed into a recession.  Cable bids are cited around the $1.8015 level.  The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7890 level and was capped around the ₤0.7945 level.

CHF

The Swiss franc weakened vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1010 level and was supported around the CHF 1.0925 level.  The pair reached its highest level since 21 February as traders continued to reduce their exposure to commodities and buy back the U.S. dollar.  U.S. dollar offers are cited around the CHF 1.1135 level.  The euro came off vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6150 level while the British pound moved higher vis-à-vis the Swiss franc as sterling tested offers around the CHF 2.0480 level.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.4725                 1.4825, 1.4697
USD/ JPY         110.46                 110.64, 109.60
GBP/ USD        1.8629                 1.8698, 1.8512
USD/ CHF         1.0968                 1.1008, 1.0925
AUD/ USD         0.8653    0.8717, 0.8609
USD/CAD          1.0650    1.0692, 1.0634
NZD/USD          0.6996                0.7013, 0.6944
EUR/ JPY         162.67    163.09, 161.99
EUR/ GBP        0.7907                 0.7944, 0.7904
EUR/ CHF         1.6150                 1.6222, 1.6148
GBP/ JPY         205.66                 205.95, 204.38
CHF/ JPY          100.69    100.76, 100.00

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, 15 August 2008

all times GMT

(last release in parentheses)

1230     US                    August Empire State manufacturing index (-4.9)

1230     Canada             June manufacturing shipments (2.7% m/m)

1300     US                    June net long-term Tic flows (US$ 67.0 billion)

1300     US                    June total net TIC flows (-US$ 2.5 billion)

1315     US                    July industrial production (0.5%0

1315     US                    July capacity utilization (79.9%)

1400     US                    August University of Michigan consumer sentiment

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.