DAILY MARKET COMMENTARY
2 September 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 extended recent losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4465 level and was capped around the $1.4615 level.  The common currency reached its lowest level since early February as traders reacted to a further pullback in oil prices.  NYMEX crude oil futures for October delivery traded as low as the $105 handle after hurricane Gustav weakened.  Data released in the U.S. today saw July construction spending off 0.6% while the August ISM manufacturing index ticked lower to 49.9 from 50.0 in July.  Kansas City Federal Reserve President Hoenig hawkishly said “The current stance of policy, while understandably calibrated for responding to the immediate financial crisis, will make it difficult to achieve our mandate for price stability over the longer term.” In eurozone news, most traders expect the European Central Bank will keep interest rates unchanged when it convenes on Thursday.  Even though economic growth is slowing in the eurozone, inflation pressures remain high and economic data released today confirm this.  EMU-15 July producer prices were up 1.1% m/m and 9.0% y/y while core producer prices were up 0.5% m/m and 4.3% y/y.  Many ECB officials have been quite hawkish lately and this is further evidence that rates are unlikely to decline anytime soon.  Comments from ECB President Trichet will be closely scrutinized on Thursday after the ECB’s interest rate decision is announced.  Luxembourg’s Juncker verbally intervened saying “the euro is still overvalued.”  Euro bids are cited around the US$ 1.4315 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥109.15 level and was supported around the ¥107.75 level.  Technically, today’s intraday high was right around the 50% retracement of the move from ¥110.65 to ¥107.60.  Bank of Japan Governor Shirakawa reported “For a central bank, we are very much interested in long-term interest rates. Japan's long-term interest rate is around 1.5 percent now. That's because market players do not expect inflation. If they think only inflation can solve Japan's debt problems, rates will rise.” Traders are also carefully monitoring the political vacuum in Japan created after yesterday’s resignation of Prime Minister Fukuda.  Most Japan-watchers expect LDP’s Taro Aso will succeed Fukuda in an interim government before next year’s general election.  Data released in Japan overnight saw the August monetary base off 0.2% y/y.  The Nikkei 225 stock index lost 1.75% to close at ¥12,609.47.  Dollar bids are cited around the ¥106.40 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥156.95 level and was capped around the ¥158.45 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥192.60 and ¥97.60 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8397 in the over-the-counter market, up from CNY 6.8256.

₤

The British pound fell sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7780 level and was capped around the $1.8010 level.  Cable reached its lowest level since April 2006 as economic sentiment weakened and traders upped their bets that Bank of England’s Monetary Policy Committee will move rates lower this year. The MPC meets on Thursday and is not expected to alter monetary policy at this time.  Chancellor of the Exchequer Darling today said he is optimistic the U.K. economy will move past its economic difficulties, one day after he was quoted as being pessimistic in the U.K. media.  The U.K. government announced a plan to waive house tax purchases for one year for properties that are less than ₤175,000.  Cable bids are cited around the $1.7420 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8160 level and was supported around the ₤0.8105 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1130 level and was supported around the CHF 1.1010 level.  The pair reached its strongest level since 10 January 20087.  Data released in Switzerland today saw GDP expand 0.4% q/q in Q2 and 2.3% y/y.  Also, August consumer price inflation fell 0.3% m/m and were up 2.9% y/y.  U.S. dollar offers are cited around the CHF 1.1390 level.  The euro and British pound moved lower vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6060 and CHF 1.9680 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.4539                 1.4614, 1.4465
USD/ JPY         108.74                 109.17, 107.76
GBP/ USD        1.7875                 1.8011, 1.7779
USD/ CHF         1.1066                 1.1130, 1.1082
AUD/ USD         0.8357    0.8531, 0.8267
USD/CAD          1.0693                 1.0747, 1.0659
NZD/USD          0.6870                0.6962, 0.6801
EUR/ JPY         158.12    158.44, 156.97
EUR/ GBP        0.8133                 0.8162, 0.8103
EUR/ CHF         1.6095                 1.6115, 1.6059
GBP/ JPY         194.44                 194.85, 192.59
CHF/ JPY            98.23      98.46,   97.58

Support                        Resistance                   Support                     Resistance

EUR/ USD                                                              USD/ JPY

L1.        1.4260                          1.4975                            106.60                        113.30 

L2.        1.3840                          1.5175                            102.45                        115.90
L3.        1.3320                          1.5380                            101.95                        117.45

   GBP/ USD                                                          USD/ CHF

L1.        1.8305                          1.9135                          1.0705                          1.1475

L2.        1.7420                          1.9525                          1.0505                          1.1610

L3.        1.6540                          1.9835                          1.0340                          1.1910

 AUD/ USD                                                           USD/ CAD

L1.        0.8430                          0.8885                          1.0440                          1.0795

L2.        0.8095                          0.9220                          1.0130                          1.1205

L3.        0.7685                          0.9370                          0.9720                          1.1870

 NZD/ USD                                                           EUR/ JPY

L1.        0.6760                          0.7275                          159.10                          164.35

L2.        0.6440                          0.7520                          156.80                          165.40

L3.        0.5930                          0.8105                          153.90                          167.80

  EUR/ GBP                                                           EUR/ CHF

L1.        0.7730                          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, 2 September 2008

all times GMT

(last release in parentheses)

0100     Japan                Bank of Japan Governor Shirakawa speaks

0130     Australia           July building approvals (-7.8% y/y)

0430     Australia           Reserve Bank of Australia interest rate decision

0545     CH                    August consumer price index (-0.4% m/m)

0545     CH                    August consumer price index (3.1% y/y)

0545     CH                    Q2 GDP (0.3% q/q)

0545     CH                    Q2 GDP (3.0% y/y)

0830     UK                    August PMI, construction (36.7)

0900     Eurozone          July purchasing managers index

1400     US                    August ISM manufacturing (50)

1400     US                    July construction spending (-0.4% m/m)

2301     UK                    August Nationwide consumer confidence (51)

2330     Australia           August performance of service index (42.8)

2330     Australia           Q2 gross domestic product (0.6% q/q)

Wednesday, 3 September 2008

all times GMT

(last release in parentheses)

0130     Australia           Q2 GDP (3.6% y/y)

0300     NZ                    August ANZ commodity prices (1.8%)

0730     Italy                  August business confidence

0740     Italy                  August PMI, services

0745     France              August PMI, services

0755     Germany           August PMI, services

0800     Eurozone          August PMI, services

0830     UK                    August PMI, services (47.4)

0900     Eurozone          Q2 GDP (-0.2% q/q)

0900     Eurozone          Q2 GDP (1.5% y/y)

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

0900     Eurozone          July retails ales (-3.1% y/y)

0930     UK                    August BRC shop price index

1100     US                    MBA mortgage applications

1130     US                    August Challenger job cuts (140.8% y/y)

1300     Canada             Bank of Canada interest rate decision

1400     US                    July factory orders (1.7%)

1800     US                    Federal Reserve Beige Book

2350     Japan                Foreign investors’ purchases of Japanese equities and bonds

2350     Japan                Japanese investors’ purchases of foreign equities and bonds

Thursday, 4 September 2008

all times GMT

(last release in parentheses)

0130     Australia           July trade balance (A$ 411 million)
1000     Germany           July factory orders (-2.9% m/m)

1000     Germany           July factory orders (-6.1% y/y)

1100     UK                    Bank of England interest rate decision

1145     Eurozone          European Central Bank interest rate decision

1215     US                    August ADP employment change (9,000)

1230     US                    Q2 non-farm productivity (2.2%)

1230     US                    Q2 unit labour costs (1.3%)

1230     US                    Weekly initial jobless claims

1230     US                    Continuing jobless claims

1400     US                    August ISM non-manufacturing index (49.5)

1800     US                    San Francisco Fed President Yellen speaks

2330     Australia           August performance of construction index (41.6)

2350     Japan                Q2 capital spending (-4.9%)

Friday, 5 September 2008

all times GMT

(last release in parentheses)

1000     Germany           July industrial production (0.2% m/m)

1000     Germany           July industrial production (1.7% y/y)

1100     Canada             August unemployment rate (6.1%)

1100     Canada             August employment, net change (-55,200)

1230     US                    Weekly initial jobless claims (-51,000)

1230     US                    August unemployment rate (5.7%)

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

1230     US                    August average hourly earnings (3.4% y/y)

1400     Canada             August Ivey PMI (65.5)

1955     US                    San Francisco Fed President Yellen speaks