NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro depreciated vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.4190 level and was capped around the $1.4265 level.  Technically, today??™s intraday high and low were right around the 23.6% and 50% retracement of the move from $1.4015 to $1.4395.  The common currency moved lower after U.S.financial giant Merrill Lynch wrote down US$ 7.9 billion from earningson account of subprime mortgage problems and said the conditions remain???uncertain.???  This reflects the troubled liquidity conditions faced by global financial firms this summer and to the extent that other U.S.financial institutions are forced to write down earnings, profits willbe reduced in upcoming quarters and that will zap demand for U.S. assets and the U.S. dollar. Data released in the U.S. today saw September existing home sales off 8% m/m to 5.04 million annualized units, and were off 19% y/y.  Continued dislocations in the U.S. housing sector could result in a rate cut by the FOMC on 31 October.  Ineurozone news, the EMU-13 manufacturing PMI survey fell to 51.5 inOctober from 53.2 in September while the services PMI survey improved55.6.  Also, it was reported that the eurozone August current account surplus was unchanged at ?‚¬3.8 billion.  Euro bids are cited around the US$ 1.4045 level.

JPN/CNY

The yen moved higher vis-? -vis the U.S. dollar today as the greenback tested bids around the ??114.10 level and was capped around the ??114.95 level.  Traders moved back into yen overnight as growing risk aversion reduced demand for higher yielding currencies.  Data released in Japanovernight saw the September merchandise trade surplus rise astronger-than-expected 62.7% y/y to a record ??1.638 trillion. Notably,imports declined for the first time in more than 3.5 years.  U.S. automakers complained overnight that the yen is being artificially devalued by the Japanese government.  The Nikkei 225 stock index lost 0.56% to close at ??16,358.39.  Dollar bids are cited around the ??113.85/ 112.60 levels.  The euro weakened vis-? -vis the yen as the single currency tested bids around the ??162.15 level and was capped around the ??163.90 level.  The British pound and Swiss franc came off vis-? -vis the yen as the crosses tested bids around the ??233.40 and ??97.05 levels, respectively.  The Chinese yuan appreciated via-a-vis the U.S. dollar as the greenback closed at CNY 7.4930 in the over-the-counter market, down from CNY 7.5068.  This represents the first time the pair has traded with a CNY 7.4 handle since the yuan was revalued in July 2005.

STERLING

The British pound weakened vis-? -vis the U.S. dollar today as cable tested bids around the US$ 2.0425 level and was capped around the $2.0515 level.  Technically, today??™s intraday low was right around the 76.4% retracement of the move from $2.0655 to $1.9650.  Cable bids are cited around the US$ 2.0270 level.  The euro came offvis-? -vis the British pound as the single currency tested bids aroundthe ?‚¤0.6935 level and was capped around the ?‚¤0.6960 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.1710 level and was capped around the CHF 1.1775 level.  September producer and import prices will be released on Friday.  Dollar offers are cited around the CHF 1.1835/ 1.1910 levels.  The euro and British pound came off vis-? -vis the Swiss franc as the crosses tested bids around the CHF 1.6690 and CHF 2.3990 levels, respectively.

AUD/NZD

The Australian dollar appreciated vis-? -vis the U.S. dollar today as the Aussie tested offers around the US$ 0.9045 level and was supported around the $0.8935 level.  The pair moved within 30 pips of establishing a new multi-decade high.  Traders bought A$ on increased expectations that Reserve Bank of Australia will lift its official cash rate by 25bps to 6.75% at its 6 November rate-setting meeting.  Q3 headline CPI was up 0.7% q/q, stronger-than-expected, and up 1.9% y/y.  Other data released in Australia today saw October skilled vacancies off 0.9% m/m.  Australian dollar bids are cited around the US$ 0.8745 level. The New Zealand dollar weakened vis-? -vis the U.S. dollar as kiwi tested bids around the US$ 0.7465 level and was capped around the $0.7600 figure.  New Zealand dollar bids are cited around the US$ 0.7465 level.

CAD