DAILY MARKET COMMENTARY
26 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 lost marginal ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4555 level and was capped around the $1.4675 level.  Technically, today’s intraday high was right around the 38.2% retracement of the move from $1.2475 to $1.6040.  It appears that U.S. congressional officials have not completely agreed on the US$ 700 billion rescue package to transfer under-performing assets from banks’ balance sheets and this has limited the U.S. dollar’s upside.  Most traders expect some semblance of a final deal will be in place by Monday.  Data released in the U.S. today saw Q2 GDP downwardly revised to an annualized 2.8% rate from the original 3.3% estimate.  Following this week’s weak durable goods and home sales data, it is quite possible that Q3 economic growth slowed to near 0%.  Other data released in the U.K. today saw final September University of Michigan consumer sentiment improve to 70.3 in September from 63.0 in August.  Inflation expectations softened to 4.3% from 4.8%.  The Federal Reserve expanded its temporary swap facility with the European Central Bank by US$ 10 billion. Dallas Federal Reserve Bank President Fisher said “In this context, inflation concerns appear to have fallen to the back burner.  The case for a rate rise seemed both less urgent and potentially disruptive given the clear and present danger of an imploding financial system and the considerable downside risks to the economy should that implosion occur.”  U.S. bank Washington Mutual became the largest U.S. bank failure ever and JP Morgan Chase Bank purchased its deposits. ECB sources said the ECB is unlikely to coordinate concerted rate cuts with other global central banks.  ECB’s Papademos reported the economic outlook is uncertain and reiterated price risks are to the upside.  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 ¥105.00 figure and was capped around the ¥106.55 level.  Traders increased long exposure to the yen as news emerged that U.S. officials have not yet completed the details of the US$ 700 billion bailout plan.  The collapse of U.S. bank Washington Mutual also decreased appetite for overseas assets, leading to additional yen gains.    New finance minister Nakagawa said volatile exchange rates are “not a plus at all” for the global economy.  He added “I have to be careful about the use of the term 'foreign-exchange intervention. From the broad perspective, it's necessary to frequently discuss (policies) with other countries and take action quickly.”  Data released in Japan overnight saw August core annual consumer price inflation print at 2.4%, consistent with expectations and the same as July’s rate. Tokyo-area core CPI rose 1.7% in September.  The Nikkei 225 stock index lost 0.94% to close at ¥11,893.16.  U.S. dollar bids are cited around the ¥102.45 level.  The euro moved higher vis-à-vis the yen as the single currency tested bids around the ¥153.45 level and was capped around the ¥155.80 level.  The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥193.15 and ¥96.60 levels, respectively.  The Chinese yuan weakened vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8485 in the over-the-counter market, up from CNY 6.8170.  Bank of China reported Chinese GDP growth will remain in the single digits in 2008 and 2009.

₤

The British pound gained ground vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.8465 level and was supported around the $1.8335 level.  Data released in the U.K. today saw Land Registry August house prices fall 1.9% m/m and 4.6% y/y.  Bank of England announced it will lend US$ 30 billion in one-week funds and add ₤40 billion on Monday.  Cable bids are cited around the $1.8150 level.  The euro came off vis-à-vis the British pound as the single currency tested bids around the ₤0.7920 level and was capped around the ₤0.7965 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0830 level and was capped around the CHF 1.0910 level.  The Federal Reserve increased its swap line with Swiss National Bank by US$ 3 billion.  Data released in Switzerland today saw the September KOF indicator fall to 0.62, a five-year low.  U.S. dollar offers are cited around the CHF 1.1430 level.  The euro and British pound moved lower vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.5860 and CHF 1.9945 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.4647                 1.4677, 1.4553
USD/ JPY         105.21                 106.55, 105.17
GBP/ USD        1.8426                 1.8441, 1.8333
USD/ CHF         1.0831                 1.0910, 1.0831
AUD/ USD         0.8302    0.8378, 0.8238
USD/CAD          1.0334                 1.0372, 1.0323
NZD/USD          0.6862                0.6880, 0.6793
EUR/ JPY         154.15    155.78, 153.47
EUR/ GBP        0.7949                 0.7967, 0.7921
GBP/ JPY         193.90                 195.82, 193.15
CHF/ JPY            97.11      97.79,   96.58

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, 26 September 2008

all times GMT

(last release in parentheses)

0645     France              Q2 GDP (-0.3% q/q)

0645     France              Q2 GDP (1.1% y/y)

0645     France              September consumer confidence

0800     Italy                  August hourly wages

0930     CH                    September leading indicator (0.68)

1230     US                    Q2 GDP, annualized (3.3% q/q)

1230     US                    Q2 personal consumption expenditure (2.1% q/q)

1400     US                    September University of Michigan consumer sentiment

1400     US                    St. Louis Federal Reserve Bank President Bullard 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.