NEWS / Foreign Exchange

U.S. Forex Market Commentary

EURO

The euro slumped vis-? -vis the U.S. dollar today as the single currency tested bids around the US$ 1.4445 level and was capped around the $1.4525 level.  Technically, today??™s intraday high was just shy of a new lifetime high for the common currency.  The big issue in front of traders today remains fallout from this summer??™s sub-prime market turmoil in the U.S.  Citigroupchairman Charles Prince resigned this week as Citigroup was preparingto announce a write-down of US$ 8-11 billion in credit losses.  This follows Stanley O??™Neal??™s departure from investment banking giant Merrill Lynch last week.  Traders are concerned that more U.S. financial institutions could announce large write-downs in the near future.  Federal Reserve Governor Mishkin reported ???The Fed's job is to limit damage to the economy. Policies to achieve this goal are designed to help Main Street and not to bail out Wall Street.  Butthis does not mean that market participants who have been overlyoptimistic about their assessment of risk don't pay a high price fortheir mistakes.??? With more financial institutions announcing largewrite-downs, the chances of another FOMC easing at the December orJanuary meetings will likely increase.  Data released in the U.S. today saw the October ISM non-manufacturing business index climb to 55.8.  Traders await testimony from Federal Reserve Chairman Bernanke on Thursday.  Euro bids are cited around the US$ 1.4385 level.

??/CNY

The yen depreciated gained ground vis-? -vis the U.S. dollar today as the greenback tested bids around the ??114.00 figure and was capped around the ??114.80 level.  Technically,today??™s intraday high was right around the 61.8% retracement of themove from ??109.00 to ??124.15. Minutes from BoJ??™s September Policy Boardmeeting suggested interest rates should be gradually raised ???inaccordance with improvements in the economic and price situation.??? BoJboss Fukui reiterated ???Ifthere is a surge in financial or economic activity triggered by overlyoptimistic assumptions about future funding costs, the foreign exchangerate or asset prices, this could distort the distribution of resources,create wild swings in the economy and prevent any sustained recovery.???  Fukui??™s remarks do little to discourage additional short yen carry trades.  MoF??™s Shinohara suggested the financial markets should welcome the U.S.??™s dollar??™s recent weakness so that it helps to reduce global trade imbalances.  The Nikkei 225 stock index lost 1.50% to close at ??16,268.92.  Dollar bids are cited around the ??113.85 level.  The euro came off vis-? -vis the yen as the single currency tested bids around the ??164.95 level and was capped around the ??166.60 level.  The British pound and Swiss franc weakened vis-? -vis the yen as the crosses tested bids around the ??237.10 and ??98.80 levels, respectively.  The Chinese yuan appreciated marginally vis-? -vis the U.S. dollar as the greenback closed at CNY 7.4551 in the over-the-counter market, down from CNY 7.4558.  PBoCreported it will continue to raise fuel prices to counter economicdistortions and Goldman Sachs estimates Chinese inflation may exceed 7%in October and November.  Most traders believe PBoC will tighten monetary policy at least one more time this year.

?‚¤

The British pound weakened vis-? -vis the U.S. dollar today as cable tested bids around the US$ 2.0780 level and was capped around the $2.0890 level.  Cable came within a few pips of establishing a new multi-decade high.  Data released in the U.K. today saw the October PMI services survey decline to 53.1, the lowest level in more than four years, from 56.7 in September.  Thesedata suggest Q3 economic data may print lower-than-expected. Other datareleased today saw IRS private sector pay up 3.4% y/y as of the end ofAugust.  Traders await the release of the BRC retail sales report tomorrow.  Additionally,September manufacturing output fell 0.6% m/m, down from a +0.5%increase in August. Most traders believe Bank of England??™s MonetaryPolicy Committee will keep the repo rate unchanged on Thursdayfollowing some comments last week that we??™re more hawkish-than-expected.  Cable bids are cited around the US$ 2.0740 level.  The euro moved highervis-? -vis the British pound as the single currency tested optionsaround the ?‚¤0.6965 level and was supported around the ?‚¤0.6935 level. 

CHF