DAILY MARKET COMMENTARY
5 September 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$ 1.4195 level and was capped around the $1.4345 level.  The common currency reached its lowest level since October 2007 as traders continued to speculate the European Central Bank’s next rate move will be lower despite nagging inflation pressures in the eurozone.  The common currency got a bump higher to intraday highs after the release of weak U.S. August non-farm payrolls data that saw the economy shed 84,000 jobs, worse-than-expected.  Payroll losses in June and July were downwardly revised and the cumulative two-month total of jobs lost is 160,000.  The August unemployment rate printed at 6.1%, the highest level seen since September 2003.  Also, August hourly wages were up 0.4%, above expectations.  The Federal Open Market Committee convenes on 16 September and is expected to keep the federal funds target rate unchanged at 2.0% when it convenes. The U.S. dollar’s recent strength is resulting in significant intervention around the world.  Bank of Korea reportedly sold up to US$ 3 billion today to prop up the won and Central Bank of the Russian Federation is said to have sold an estimated US$ 4 billion yesterday to prop up the ruble after it fell to its lowest level since February 2007.  In eurozone news, traders await next week’s updated economic growth forecasts from the European Commission.  European Central Bank member Stark hawkishly reported “inflation remains at worrying levels and financial tensions persist.” Similarly, ECB member Nowotny reported “Eurozone inflation is much too high. The rate of price increases appears to have peaked now, but there is still every reason for heightened alertness towards inflationary risks.”  Euro bids are cited around the US$ 1.3840 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥105.50 level and was capped around the ¥107.35 level.  Technically, today’s intraday high was just above the 76.4% retracement of the move from ¥103.75 to ¥110.65.  The yen is strengthening across the board as traders are bracing for more losses in commodity hedge funds.  The world’s largest commodities hedge fund, Ospraie Management LLC, closed its flagship fund this week and PIMCO executive Bill Gross said the U.S. Treasury needs the authority to purchase debt and other assets to stop a “financial tsunami.”  The yen gained strength on these news because many hedge funds sold yen to invest in higher-yielding plays such as commodities and now that they are being unwound, the yen is being bought back and is appreciating.  Data released in Japan overnight saw non-financial companies’ capital investments fall 6.5% y/y in Q2, worse than the 4.9% y/y decline in Q1.  Also, Japan’s foreign reserves fell to US$ 996.74 billion at the end of August from US$ 1.00 trillion at the end of July.  In political news, LDP mandarin Aso formally announced his bid for the party’s presidential election on 22 September.  The Nikkei 225 stock index lost 2.75% to close at ¥12,212.23.  Dollar bids are cited around the ¥103.20 level.  The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥150.55 level and was capped around the ¥153.40 level.  The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥186.15 and ¥95.00 levels, respectively.  The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8422 in the over-the-counter market, up from CNY 6.8365.

₤

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.7535 level and was capped around the $1.7740 level.  The pair reached its lowest level since April 2006.  Bank of England’s Monetary Policy Committee kept interest rates unchanged yesterday and traders are speculating the MPC will move rates lower within a few months.  Cable bids are cited around the $1.7420 level.  The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.8055 level and was capped around the ₤0.8140 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1180 level and was supported around the CHF 1.1065 level.  U.S. dollar offers are cited around the CHF 1.1390 level.  The euro and British pound depreciated vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5810 and CHF 1.9495 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.4294                 1.4337, 1.4196
USD/ JPY         106.01                 107.33, 105.52
GBP/ USD        1.7680                 1.7720, 1.7536
USD/ CHF         1.1090                 1.1179, 1.1072
AUD/ USD         0.8112    0.8229, 0.8027
USD/CAD          1.0617                 1.0725, 1.0601
NZD/USD          0.6673                0.6728, 0.6588
EUR/ JPY         151.82    153.40, 150.53
EUR/ GBP        0.8091                 0.8139, 0.8062
EUR/ CHF         1.5862                 1.5918, 1.5809
GBP/ JPY         187.68                 189.45, 186.15
CHF/ JPY            95.71      96.55,   95.00

Support                        Resistance                   Support                     Resistance

EUR/ USD                                                              USD/ JPY

L1.        1.3840                          1.4975                            106.60                        113.30 

L2.        1.3320                          1.5175                            102.45                        115.90
L3.        1.2675                          1.5380                            101.95                        117.45

   GBP/ USD                                                          USD/ CHF

L1.        1.7420                          1.9135                          1.0705                          1.1475

L2.        1.6450                          1.9525                          1.0505                          1.1610

L3.        1.5445                          1.9835                          1.0340                          1.1910

 AUD/ USD                                                           USD/ CAD

L1.        0.8095                          0.8885                          1.0440                          1.0940

L2.        0.7910                          0.9220                          1.0130                          1.1205

L3.        0.7685                          0.9370                          0.9720                          1.1870

 NZD/ USD                                                           EUR/ JPY

L1.        0.6590                          0.7275                          153.00                          164.35

L2.        0.6440                          0.7520                          153.30                          165.40

L3.        0.5930                          0.8105                          145.65                          167.80

  EUR/ GBP                                                           EUR/ CHF

L1.        0.7730                          0.8310                          1.5895                          1.6250

L2.        0.7555                          0.8570                          1.5730                          1.6470

L3.        0.7440                          0.8790                          1.5610                          1.6760

  GBP/ JPY                                                           CHF/ JPY

L1.        188.55                          200.50                            94.15                         100.15

L2.        181.15                          206.00                            91.30                         103.30

L3.        173.75                          214.65                            87.40                         105.30

SCHEDULE

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                    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

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.