DAILY MARKET COMMENTARY
30 October 2008

Thursday

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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 moved sharply higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3295 level and was supported around the $1.2940 level.  The common currency recovered following a recovery in emerging market assets.  The European Union and International Monetary Fund bailed out Hungary to the tune of US$ 25.1 billion and the IMF also enacted a short-term financing facility for emerging market economies that have been well-managed but are facing funding difficulties.  The euro gained on this news because traders have recently been reducing exposure to currencies with higher yields and if emerging markets are stabilized, traders will be less inclined to sell euro for yen and Swiss francs.  The Federal Open Market Committee yesterday reduced the federal funds target rate by 50bps to 1.00% and cut the discount rate.  Fed policymakers reported “The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”  Some dealers believe the fed funds target rate could move lower if other central banks reduce their rates.  The Fed enacted more reciprocal swap lines with other central banks including those in New Zealand, South Korea, Mexico, and Brazil.  Data to be released in the U.S. today include Q3 GDP and GDP price indices along with weekly jobless data.   In eurozone news, some traders believe the European Central Bank will cut rates by 25bps next week while others see a 50bps easing. Data released in Germany overnight saw the September ILP unemployment. Euro bids are cited around the US$ 1.2135 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥99.10 level and was supported around the ¥97.20 level.  There is growing speculation Bank of Japan’s Policy Board will announce the first cut in interest rates in some seven years at the end of the week.  This would signify solidarity between Japanese central bankers and their Group of Seven counterparts in handling the ongoing credit market dislocations.  The Fed’s decision to reduce the overnight rate to 1.00% renders it increasingly likely BoJ will take its overnight call rate lower to 0.25%.  Data to be released in Japan tonight include Tokyo and nationwide CPI, household spending, and employment data.  The Nikkei 225 stock index climbed 9.96% to close at ¥9,029.76.  U.S. dollar offers are cited around the ¥104.15 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥131.00 figure and was supported around the ¥125.80 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥165.00 and ¥88.00 figures, respectively. In Chinese news, a government think-tank reported 2008 GDP is expected up 9.8% y/y with CPI up around 6.3%.

₤

The British pound rallied vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.6670 level and was supported around the $1.6350 level.  The improvement in emerging market economies and recent stabilization in global equity markets has supported higher-yielding currencies such as sterling. 
Prime Minister Brown met with business leaders today to discuss new policies to improve the financial markets.  Brown also continues to defend the lofty levels of government borrowing, reporting it is much needed to counter the negative impact of the global financial market crisis.  Bank of England’s Monetary Policy Committee is expected to reduce its main repo rate by up to 50bps next week.  Data released in the U.K. today saw Nationwide October house prices off 1.4% m/m and 14.6% y/y while pay settlements were steady a 3.8% between July and September.  Data to be released in the U.K. tomorrow include the October GfK consumer confidence number.  Cable bids are cited around the US$ 1.6400 figure.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the 0.8010 level and was supported around the ₤0.7890 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.1195 level and was capped around the CHF 1.1335 level.  Swiss National Bank has been actively trying to get three-month franc LIBOR back within its target band.  Many traders believe Swiss National Bank will reduce interest rates in December.  The October KOF leading indicator will be released tomorrow.   U.S. dollar offers are cited around the CHF 1.1805 level.  The euro and British pound climbed higher vis-à-vis the U.S. dollar as the greenback tested offers around the CHF 1.4900 and CHF 1.8760 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

             (Bid Price)       (Today’s Intraday Range)                               

EUR/ USD         1.3215                 1.3295, 1.2941
USD/ JPY           98.81                   99.11,   97.20
GBP/ USD        1.6640                 1.6671, 1.6349
USD/ CHF         1.1239                 1.1335, 1.1196
AUD/ USD         0.6871                 0.6887, 0.6621
USD/CAD          1.1923                 1.2256, 1.1904
NZD/USD          0.5978                0.5982, 0.5794
EUR/ JPY         130.62    131.01, 125.82
EUR/ GBP        0.7934                 0.8010, 0.7892
GBP/ JPY         164.55                 165.02, 159.07
CHF/ JPY            87.87                   88.02,   85.90

Support                        Resistance                   Support                     Resistance

EUR/ USD                                                              USD/ JPY

L1.        1.2130                          1.2925                             89.30             100.75 

L2.        1.1590                          1.3205                            84.20             103.10
L3.        1.1210                          1.3595                             81.10             106.00

   GBP/ USD                                                          USD/ CHF

L1.        1.5065                          1.6435                          1.1335                          1.1895

L2.        1.4580                          1.7150                          1.1080                          1.2425

L3.        1.4155                          1.7725                          1.0875                          1.3285

 AUD/ USD                                                           USD/ CAD

L1.        0.5535                          0.6380                          1.2375                          1.3460

L2.        0.5380                          0.6620                          1.2100                          1.3980

L3.        0.4775                          0.6980                          1.1655                          1.4505

 NZD/ USD                                                           EUR/ JPY

L1.        0.5120                          0.5875                          110.20                          119.90

L2.        0.4915                          0.6055                          108.05                          121.90

L3.        0.4650                          0.6340                          102.95                          129.15

  EUR/ GBP                                                           EUR/ CHF

L1.        0.7565                          0.8195                          1.3750                          1.4655

L2.        0.7365                          0.8400                          1.3210                          1.5060

L3.        0.7170                          0.8840                          1.2940                          1.5560

  GBP/ JPY                                                           CHF/ JPY

L1.        138.60                          156.95                            76.50                           84.80

L2.        124.20                          168.25                            69.75                           87.40

L3.        103.90                          177.35                            58.85                           91.70

SCHEDULE

Thursday, 30 October 2008

all times GMT

(last release in parentheses)

N/A       Japan                Bank of Japan Policy Board meeting minutes

N/A       Japan                Bank of Japan Policy Board interest rate decision

N/A       Germany           September retail sales (3.1% m/m)

N/A       Germany           September retail sales (-3.0% y/y)

0200     NZ                    October NBNZ business confidence (1.6)

0200     NZ                    September M3 money supply (7.2% y/y)

0600     Germany           September ILO unemployment rate (7.2%)

0745     France              September producer prices (-0.5% m/m)

0745     France              September producer prices (6.9% y/y)

0855     Germany           October unemployment change (-29,000)

0900     Italy                  October PMI, retail

0900     France              October PMI, retail

0900     Germany           October PMI, retail

0900     Eurozone          October PMI, retail

1000     Eurozone          October business climate indicator (-0.79)

1000     Eurozone          October consumer confidence (-19)

1000     Eurozone          October economic confidence (87.7)

1000     Eurozone          October industrial confidence (-12)

1000     Eurozone          October services confidence (0)

1230     US                    Q3 GDP, annualized (2.8% q/q)

1230     US                    Q3 GDP price index (1.1%)

1230     US                    Q3 personal consumption expenditure, core (2.2% q/q)

1230     US                    Weekly initial jobless claims (478,000)

1230     US                    Continuing jobless claims (3.720 million)

1230     Canada             September industrial product prices (-0.2% m/m)

1230     Canada             September raw materials prices (-7.7% m/m)

1915     US                    San Francisco Fed President Yellen speaks

2330     Japan                October Tokyo CPI (1.4% y/y)

2330     Japan                October Tokyo CPI, ex-food and energy (0.5% y/y)

2330     Japan                September CPI, national (2.1% y/y)

2330     Japan                September CPI, ex-food and energy (0.0% y/y)

2330     Japan                September jobless rate (4.2%)

2330     Japan                September household spending (-4.0% y/y)

Friday, 31 October 2008

all times GMT

(last release in parentheses)

0000     Japan                Bank of Japan Policy Board meeting

0001     UK                    October GfK consumer confidence (-32)

0030     Australia           September private sector credit (0.5% m/m)

0030     Australia           September private sector credit (10.5% y/y)

0030     Australia           Reserve Bank of Australia Assistant Governor Debelle speaks

0100     Australia           September HIA new home sales (-1.3% m/m)

0500     Japan                September housing starts (53.6% y/y)

0500     Japan                September housing starts, annualized (1.130 million)

0500     Japan                September construction orders (-0.3% y/y)

0600     Japan                Bank of Japan semi-annual economic outlook report

0900     Italy                  September producer price index (-0.2% m/m)

0900     Italy                  September producer price index (8.2% y/y)

1000     Eurozone          October consumer price index estimate (3.6% y/y)

1000     Eurozone          September unemployment rate (7.5%)

1030     CH                    October KOF leading indicator (0.62)

1230     US                    September personal consumption expenditures, core (0.2% m/m)

1230     US                    September personal consumption expenditures, core (2.6% y/y)

1230     US                    September personal consumption expenditures (4.5% y/y)

1230     US                    September personal income (0.5%)

1230     US                    September personal spending (0.0%)

1230     US                    Q3 employment cost index (0.7%)

1230     Canada             August gross domestic product (0.7% m/m)

1345     US                    October Chicago PMI (56.7)

1400     US                    October University of Michigan consumer sentiment (57.5)

1800     US                    Federal Reserve Chairman Bernanke 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.